Predatory lending is a common problem for Arizona consumers in various commercial contexts, such as home improvements, payday lending, auto title loans, tax refund loans, and mortgage loans. Although payday loans are illegal in Arizona, many payday lenders continue to offer such loans to Arizona consumers over the internet from locations outside of Arizona. Predatory loans usually have excessive and often disguised fees, inflated rates, and other terms that frequently result in consumers being unable to make their loan payments on time, resulting in default.
Below are some general guidelines to avoid predatory loans and unscrupulous lenders:
- Always shop around. Examine the terms of the loan and compare it to those offered by other lenders. Start with a traditional lender, especially one with whom an existing relationship already exists.
- Ask questions. Understanding the terms of a loan is the key to a successful transaction. The numbers and various terms can be confusing to the average buyer. Do not be afraid to ask someone, especially someone you trust, to explain anything that is unclear. Never sign a document without knowing the complete terms of the obligation.
- Be aware of the TOTAL payment amount over the life of the loan. Although the monthly payment amount may be low, the extra fees increase the total cost of the loan. Borrowing more than is affordable per month is never a good financial decision.
- Avoid promises to refinance at better rates in the future. There is no guarantee that interest rates can be reduced in the future. Interest rates depend on many factors such as income, credit score, collateral, and market changes. The lender who originated the loan cannot promise a better rate in the future because they cannot accurately predict these variables.
- Never sign a blank document or anything the lender promises to fill in later. If a consumer signs a blank document, fraudulent lenders could change any term they previously promised. If a lender claims that an offer is good for a limited time, investigate and compare this offer to other lenders. If in doubt, do not sign. An honest lender wants new business and will not set unreasonable time limits on accepting the loan terms or use high pressure tactics.