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Edward Jones Diversity Series
"Do You Know A Shark When You See One?" September 2003 - Predatory lenders thrive on excessive interest rates, unnecessary fees and other deceptive practices that make paying debt nearly impossible. They frequently target borrowers with both good and fair credit, the elderly, low-to moderate-income individuals and families and minorities. Do You Know A Shark When You See One? Popular media has created an indelible image of the loan shark as someone dressed in a black leather jacket with a tough-as-cement demeanor. The "loan shark'' not only makes excessively high interest-rate loans down at the neighborhood bar. In recent years, however, loan sharking has taken on a new image. Borrowers now come across loan sharking in suburban strip malls, at pleasant, brightly-lit offices and through the mail with enticing offers urging you to "pay off your bills or take that dream vacation." Here are some examples of what can happen when you don’t know a loan shark when you see one: Ms. Smith needed to borrow money. Yet, past credit problems made it more difficult for her to obtain a loan from a bank or other traditional lender. One day, Ms. Smith received a loan, or rather, a live check in the mail from a company with a well-known and long-established name. She carefully read the enclosed fine print and cashed the check. Weeks later, Ms. Smith received her first bill that revealed she had agreed to a loan with an interest rate of 38 percent! A $1,000 loan became more than $2,600. In addition to a very high interest rate that was not made clear to her, she also was hit with high fees for credit insurance. In the end, Ms. Smith solved one financial dilemma only to create another. Mr. and Mrs. Jones worked years to build equity in their home. When sudden unemployment and medical bills that reached beyond their health insurance coverage beset them, they fell behind in their bills. Lured by the promise of hundreds of dollars saved in monthly payments, the couple sought quick relief from a home equity loan or debt consolidation loan. They borrowed $20,000 against the $70,000 in equity they had on their $100,000 home. This second mortgage, however, came with a much higher interest rate and unnecessary lender fees of which the couple were unaware. Their loan ultimately increased their monthly payments and reduced their home equity to $40,000. Other predatory lending practices include offering loans that disregard a borrower's ability to repay by charging prepayment penalties, rolling in credit insurance fees and loan flipping. Loan flipping occurs when a lender repeatedly encourages existing borrowers or customers to refinance their loans only to tack on excessive fees each time. Avoiding a Shark Attack Knowledge is power against predatory lending. Before signing your name on the dotted line, be certain to:
(Sources: Freddie Mac, Fannie Mae and ACORN) What's Your Plan? Being aware of predatory lending practices is particularly crucial when preparing to purchase a home, one of life's biggest investments. According to Pierre Johnson, an Edward Jones Investment Representative in Austin, Texas, so is careful financial planning. "When a client comes in, I have them complete a financial goals worksheet. This worksheet considers goals like saving for a vacation, their child's college education or buying a home. If they choose buying a home, for example, we then determine how long they have to save for it." Edward Jones, the nation's largest financial services firm based upon its more than 8,800 branch office locations, offers products that can not only assist clients with saving for a required down payment, but also appraisal fees, closing costs and other unexpected expenses that come with purchasing a home. "If the window of time before buying a home is three to five years, we can consider a certificate of deposit or other investment to help you achieve more high growth savings.'' Founded in 1871, Edward Jones was one of the first financial services firms to recognize that a sound financial future can be available to anyone. It achieves this philosophy through thousands of highly trained investment representatives who offer one-on-one service throughout the country to help investors reach their goals and through public awareness efforts to inform investors of financial pitfalls such as predatory lending. For more information about various investment and retirement products or to find an investment representative in your area, visit www.edwardjones.com.
View articles from previous editions in the complete Edward Jones Diversity Series Archives
IMDiversity.com is committed to presenting diverse points of view. However, the viewpoint expressed in this article is the opinion of the author and is not necessarily the viewpoint of the owners or employees at IMD.
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