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How to Protect Yourself From Unscrupulous Lenders

[Jan 8, 2009.]


Since time immemorial, lenders and borrowers have had a mutually beneficial, but also antagonistic, relationship. Shakespeare advised, "Neither a borrower nor a lender be." But the reality is that most everyone is one or the other at some time in life, and often both at the same time.

Lately, the antagonistic side has been more in evidence, thanks to the subprime lending fiasco. Many prominent commentators have issued warnings against abusive lending practices in this area.

Thankfully, although lending standards are tigheter across the board, this fiasco and these warnings have not completely prevented lenders from making personal loans. In fact, personal loans, even personal loans for people with bad credit or unsecured personal loans, are still available.

But borrowers must take responsibility for avoiding unscrupulous lenders. Here are a couple ideas foir how to do that, based on the FDIC's Consumer Protection statutes:

Look For Lots of Paperwork, and Actually Read the Important Parts

Sometimes, when borrowers are badly in need of a personal loan, the temptation is to "take the money and run." While understandable, this attitude exposes borrowers to shady operators.

To make sure your personal loan is on the up and up, look for lots of paperwork being handed to you. The Truth in Lending Act (TILA) mandates extensive disclosures from lenders to borrowers, including annual interest rate and loan repayment terms. Lenders that make deals "on a handshake" are not in compliance with important laws. Beware.

Even if a personal loan is from a relative or friend, put the deal on paper, and be specific.

Ask About Other Options

Though it may seem rude to timid souls, one of the best ways to test the character of a lender extending a personal loan is to ask about other options for obtaining financing. Honest lenders provide a real service, and don't need to keep people ignorant so as to make loans.

Ask the lender to lay out other possibilities. These may include:

-- Credit cards

-- Personal line of credit at a bank

-- Family and friends personal loan

-- Tax refund anticipation loan

-- Loan collateralized against personal property (car)

For many borrowers, especially in the case of bad credit personal loans, these other options may not be feasible. But lenders should not be squeamish about discussing other options. Compare and contrast exercises are always worthwhile when deciding to take out any sort of loan.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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