Section 4:
Protecting yourself against unscrupulous lenders

NEVER, EVER …

• Agree to a home equity loan if you can't afford the monthly payments.
• Fold under pressure to sign documents.
• Sign documents you haven't read or that have blank spaces to be filled in after you have signed.
• Agree to a loan that has extra products you don't want to buy, such as credit insurance, or that includes terms that weren't there when you applied.
• Allow the promise of extra cash or lower monthly payments to cloud your judgment about whether the cost is worth it.

ALWAYS …

• Demand an explanation of any cost, term or condition you don't understand. Federal law is very clear about what information must be provided in writing when you apply for a loan and before you sign any agreement.
• Shop around if you want credit insurance. Buying it from a lender may not be a good deal.
• Keep meticulous records of what you have paid, billing statements and canceled checks.
• Challenge charges you think are inaccurate.
• Check contractors' references before having work done on your home, and get more than one estimate.
• Keep a copy of everything thing you sign.
• Be sure you are dealing with a reputable lender. You may want to check with your local Better Business Bureau, state licensing authority, chamber of commerce or a consumer protection agency.

The following chart demonstrates how even small, unnecessary fees can make a big difference on the bottom line.

Compare two loans

Let’s compare two examples. Loan 1 is the “shark’s version” and Loan 2 is the version you might see at your local lending institution. Note that the APR is lower on Loan 1, but that the payments and final payout are higher. The difference is in the fees and add-ons.

* Credit life insurance is sold as a one-time premium that is rolled back into the amount financed. It is NOT a good deal. Buy term life insurance from an insurance agent instead.