Student Loan Refinancing: How To Avoid Predatory Lending

No one wants to get scammed, but it can be hard to feel confident about whether you’re working with a reputable source or not. In an era when we have access to so many different options and there are countless financial entities available at our fingertips, there are some things to keep in mind so that you don’t end up getting a raw deal. It’s not uncommon if you’re interested in student loan refinancing, or have been approached by a company to see if they’re legit before you move forward. Here are some tips on how to avoid being a victim of predatory lending:

Rushed approval or paperwork

When signing onto a loan, it’s important to have time to fully review all contracts and loan documents. Reading the fine print is always a must. That way, you can make sure you understand and can afford the loan you’re agreeing to.

If your lender is trying to rush you into signing paperwork or telling you to skip reading through it carefully, that’s definitely a warning sign. Predatory lenders count on borrowers not having the time or know-how to understand their contracts. If they don’t want you to spend too much time reviewing the contract, it could be a sign it includes unfair fees or terms.

Additionally, watch out for any unexpected paperwork. The second set of documents you’re asked to sign could be a sign of fraud. You should also watch for any fields that are left blank, as the lender could go back and use those to alter the terms of the agreement.

At the end of the day, your personal loan contract should be fully fleshed out and clear upon signing.

Check your sources

It’s not uncommon to find random financing offers around the internet. Companies regularly send postcards and mailers to try to get your attention. The marketing material can look pretty convincing, too. Don’t let a slick landing page or a nice mailer fool you. You generally want to find suggestions from sources you trust, like a financial expert, or trusted online sources. A good resource would be the Better Business Bureau. You can see online complaints, information about the company, and all provided by an unbiased source. Websites with unbiased reviews and legitimate accreditation or backing can be an ideal source to verify credibility.

Never trust dishonest marketing

It may sound extreme, but we’ve heard of examples where someone was approached by an entity that attempted to look like the government. These scare tactics are used frequently enough by scammy companies for one reason, they work. These companies use this scare tactic because when you think the government is trying to get in touch and you’re in trouble, you answer. If the company tried to look like a government program and later you find out they’re not, drop them. A legitimate company won’t send fake notices or use a misleading URL to get your business.

Listen to the adage

If it’s too good to be true, it probably is. There’s a reason that this simple advice is so often passed down. Amazing offers are rare. If something sounds like there’s no way they could offer you such incredible terms or that great of a deal, there is likely fine print that’s missing. Fact check the offer and look for comparable data. Your alarm bells should go off if you’re looking at a company whose reputation is dubious. This especially proves true if they’re claiming to get you unheard-of service or savings.

Loan flipping to avoid predatory lending

Refinancing debts can be a money-saver. However, predatory lenders will use it as an opportunity to make a buck. Typically, refinancing a loan will help you get a new loan at a lower interest rate than your existing debt. It could also get you other beneficial terms like lower monthly payments.

With a predatory lending practice called loan flipping, however, the lender actually refinances with a new loan that has higher rates. And, it’s more expensive than the previous debt or your new loan might save you a small amount, but those savings are offset by the costs of originating a new loan.

Make sure you’re doing the math and comparing your costs of the refinanced loan with your existing debts. Many lenders will provide a comparison upon request. If a lender is unwilling to do this, take a closer look at the terms they’re offering.