Navigating the lending process can be challenging, whether purchasing, refinancing or upgrading a home, buying a car, or simply needing some extra cash. Common loan and financing issues include excessive and disguised fees, inflated interest rates, and undisclosed terms that may make it difficult for borrowers to make their loan payments on time. Borrowers should always be careful when taking out a loan.

Below are some general guidelines to follow:

• Always shop around. Examine the terms of the loan and compare it to those offered by other lenders. Consider starting with a traditional lender, especially one you already have an existing relationship with, like your bank or credit union. 
• Ask questions. Understanding the terms of a loan is the key to a success. 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. Even if the monthly payment is low, the fees and interest can build over time to substantially increase the total cost of the loan. Borrowing more than you can pay each per month is never a good financial decision, but also consider how much you will end up paying in total.
• 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 cannot promise a better rate in the future because they cannot accurately predict these factors.
• Never sign a blank document or anything the lender promises to fill in later. If a borrower signs a blank document, fraudulent lenders can change the terms. If a lender claims that an offer is only 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.

Related Resources:

• FTC page on “buy now, pay later” lenders
• FTC page on “Payday Lending” businesses
• FTC page on “Loans and Mortgages”