Home Equity Loans - Avoid Abusive Lending

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Unsecured Loans - Raise funds without collateral
Most of us have a long list of wants but limited resources to fulfill them. Adding to it some of us don't have any security to back the loan. However, you don't have to lose heart if you are facing same kind of situations. The best solution for you will be to opt for Unsecured Loans. More and more people are joining the bandwagon of Unsecured Loans everyday because of its appealing features. The m... Read loans article



Personal Secured Loans and Information
Here is a useful guide to personal secured loans. A personal secured loan is the generic term for a loan. A personal secured loan is secured against your home to act as security to the lender for the money you have borrowed.

A personal secured loan is often referred to as a homeowner loan. Personal secured loans are an ideal solution for homeowners who have recently been refused a perso... Read loans article



Home Equity Loans - Avoid Abusive Lending
Home Equity loans were initially designed to allow individuals who had not yet paid off the full amount of their home, the ability to borrow against what portion of the home they had paid for. So for example, a couple who had been making monthly payments for many years on their 30 year lease, could use the money they had already put into their home as collateral when they needed a loan to send their child to college. So, while the initial intent of the loan is regarded by some as noble, in practice it has served as a free-for-all for unscrupulous lenders and other scam artists.

Explaining Sub-Prime Lending
Home Equity Loans fall into a broad category known as sub-prime lending. Unlike prime lending, which is heavily regulated and offered to those living in good neighborhoods with fair to good credit, sub-prime lenders target those in bad neighborhoods with worse credit ratings. Because they offer loans to individuals who otherwise might have difficulty finding a loan, they were and are able to justify to the government the need to have greater free reign when it comes to setting the interest rates and finance charges associated with their loans.

This window, combined with the deep pockets of Home Equity Loan firms able to grease the campaigns of politicians, has prevented the industry from coming under the heavy scrutiny and regulation of prime lending. Consequently, what is seen in this industry is widely varying interest rates, and charges that are completely disproportionate with the risk incurred by the lending institution.

How to Protect Yourself
For the investor interested in taking on a Home Equity Loan, there are a few measures which can be taken to radically diminish the chances of being taken advantage of. The first precautionary step is to request a copy of the loan a full week before you sign it. The lending institution is required by law, to provide you with a copy of the loan many days in advance of you signing it. It is a rather simple task to ask for the loan, and the lending institutions response often reveals much about the quality and legality of the loan. If the lending institution says, that either the loan paperwork is not yet ready, or otherwise fails to produce the paperwork inside of a week prior to the signing, you should walk on the loan.

The catch-22, and consequently the reason why Home Equity Lenders are able to take such advantage of borrowers, is that often they are facing foreclosure and desperately need the loan. While your need may be very real, signing a sub-standard loan will ultimately put you in far worse shape than you ever were before.

Recognizing the Hidden Charges
The second, and potentially most important technique to prevent predatory lending, is to demand that all loan costs not be rolled into the APR, but be listed and paid by you up front. What predatory lenders do to entice individuals into taking a loan, is to soak up the equity in a home and offer you a small kickback on the side. So, taking the example of our couple above, let us imagine that they have $50,000 in equity in their $100,000 home and have a fixed mortgage rate of $650 a month. They then go to a Home Equity Lender who tells them that upon signing the loan they will get $20,000 in cash and their new interest rate will be $580 per month. What they do not tell the borrower is that they have also cashed out the other $30,000 dollars in equity and paid it to themselves in "refinancing fees." In addition, the new mortgage they receive may either be variable, meaning that as interest rates climb so will their new payment, or be back loaded, meaning that by the end of the loan the payments may reach $1,200 a month.

Can Home Equity Loans be useful? Yes, but only under ideal circumstances. By and large, they are a product designed by unethical lending companies to take advantage of those desperate for a little cash now. If you plan on applying for a Home Equity Loan, it is vital that you take the two steps outlined above as well as have an experienced independent third party go over the loan and its convoluted terms with you.

Dan Johnson enjoys writing about home equity loans.

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How And When To Shop For A Loan

If you're thinking of getting a loan but aren't exactly sure whether the current loan market is likely to produce a good interest rate, you might want to do a little bit of basic research into the interest rates that are offered both locally and nationally, as well as the various loan rates that are offered by different banks and lenders in your local area.

Below are some suggestions for how to tell whether or not the time is right for you to apply for a loan, as well as tips on how to shop around so as to find the best loan that you can get.

Researching national rates

The first thing that you need to do when trying to determine whether the time is right to apply for a loan is to do a little bit of research so as to find out what the base national interest rate is.

The interest rates that are set nationally are the basis for all interest rates, though some cities and localities may increase their rates from that point.

It's also a good idea to find out what the most recent changes in national interest rates have been, and whether there has been an increase or a decline as the rates change.

Anticipating rate changes

During your research of national interest rates it would be advisable to look for signs that the interest rate might be changing in the near future. These changes are often anticipated well in advance, and information about potential changes can often be found in financial journals, tabloids, and newspapers before the actual changes are announced.

If you find information that shows an interest rate increase is on its way, then you would be best served to get a loan before the increase... however, if you find that interest rates are going to be lowering in the near future then you might do better to wait until the rates go down so that you can save a little bit of money on interest.

If you find that there isn't any pending rate change in the near future then you'll likely do just as well shopping for a loan now as you would if you decide to wait.

Credit and collateral

Of course, there are other factors that can influence the amount that you pay for your loan aside from simply the base interest rates.

Two of the most important of these factors are your credit score and the collateral that you have to secure the loan... after all, these are what the bank or lender are going to look at to determine whether to approve you for the loan and what interest rate to set for your payments.

Your credit score tells the potential lender whether you've had problems repaying your debts in the past, and the collateral that you use guarantees that they'll get their money back even if you default on the loan.

Using high value collateral that has an easily-accessible market (such as an automobile or real estate) can generally make a difference in cases where your credit is less than perfect.

Shopping for the best loan

Finally, it's important to shop around for the best deal on a loan instead of simply accepting the first loan offer that you receive.

By requesting quotes from a variety of banks, online lenders, and finance companies you should be able to determine which lender is willing to offer you the best rates, and find the right loan for the right price.

You may freely reprint this article provided the following author's biography (including the live URL link) remains intact:

About The Author

John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website.


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Home Equity Loans - Avoid Abusive Lending
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