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Personal Loans

7 Best Personal Loans that Accept Cosigners or Co-Borrowers

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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When you need to borrow money but don’t want to deal with the uncertainty of credit cards, a personal loan is a smart option to consider.

Not only do personal loans come with fixed interest rates, but they also come with fixed monthly payments and a fixed repayment period. With a fixed payment, you’ll never end up with a monthly bill that’s higher than you thought it would be. A fixed repayment timeline also lets you know exactly when your loan will be paid off.

If you’re on the fence about borrowing money, keep in mind that there are many reasons why a personal loan may be a viable option for you. Perhaps you want to consolidate high interest debt with a new loan that features a lower interest rate and better terms. Maybe you need to remodel your kitchen or fix your car that has been broken down for months. Whatever the reason, a personal loan offers a predictable way to borrow money without any surprises.

But what do you do if you can’t get a personal loan on your own? A cosigner  or co-borrower could help you qualify for funds. Here’s what you should consider before applying with a cosigner or co-borrower, plus personal loans that accept cosigners or co-borrowers.

When should you find a personal loan cosigner?

While personal loans offer a smart way to borrow money, not everyone can qualify. Lenders consider your income, employment status, debt-to-income ratio and your credit score before they approve you, which could be a problem if your finances aren’t in the best shape.

If you don’t have the time to improve your credit score before applying for a loan, a personal loan cosigner can help your application. A cosigner agrees to guarantee the loan if you stop making payments. A cosigner could be a family member or a close friend, but it needs to be someone with good credit for them to help you qualify for a loan.

Here are the pros and cons of getting a cosigner for your personal loan:

Pros

  • Qualify for a loan when you may otherwise not have been able to
  • Get better terms on your personal loan
  • Can use the loan to build your credit
  • Have someone to hold you accountable, if you’re new to debt

Cons

  • Your cosigner’s credit report could take a hit if you miss payments
  • If you stop making payments, your cosigner will be equally responsible
  • Can strain your relationship if you’re not on top of your loan

Don’t mistake a cosigner for a co-borrower

Before you apply for a personal loan with a cosigner, it’s also important to note the difference between a cosigner and a co-borrower. Where a cosigner lends their good credit to your loan application and guarantees to repay your loan if you do not, a co-borrower is someone who shares in your obligation to repay money you borrow.

If you plan to take out a personal loan with your spouse and you each plan to make payments toward the loan, for example, your spouse would act as a co-borrower and not a cosigner. With that being said, it’s possible you could benefit from having a co-borrower or a cosigner provided the other individual has good credit and the financial means to repay the loan.

7 personal loans that accept cosigners or co-borrowers

A cosigner can help you qualify for a loan you may not be able to get on your own. Fortunately, there are a handful of companies that readily accept loans with more than one applicant.

To help you find some of the best loan options within this category, we compared lenders based on their interest rates, loan terms, borrowing limits and credit requirements. Here are some of the top personal loans you can get with a cosigner or a joint applicant.

Company
APR
Terms
Min Loan Amount
Max Loan Amount

4.99% - 19.99%*

with AutoPay

24 to 144*

months

$5,000

$100,000

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure.

*Your loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 3.49% APR with a term of 3 years would result in 36 monthly payments of $292.98.

10.68% - 35.89%

36 or 60

months

$1,000

$40,000

SEE OFFERS Secured

on LendingTree’s secure website

18.00% - 35.99%

24 to 60

months

$1,500

$20,000

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure.

Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on your ability to meet our credit standards (including a responsible credit history, sufficient income after monthly expenses, and availability of collateral). Larger loan amounts require a first lien on a motor vehicle no more than ten years old, that meets our value requirements, titled in your name with valid insurance. Maximum annual percentage rate (APR) is 35.99%, subject to state restrictions. APRs are generally higher on loans not secured by a vehicle. Depending on the state where you open your loan, the origination fee may be either a flat amount or a percentage of your loan amount. Flat fee amounts vary by state, ranging from $25 to $400. Percentage-based fees vary by state ranging from 1% to 10% of your loan amount subject to certain state limits on the fee amount. Active duty military, their spouse or dependents covered under the Military Lending Act may not pledge any vehicle as collateral for a loan. OneMain loan proceeds cannot be used for postsecondary educational expenses as defined by the CFPB’s Regulation Z, such as college, university or vocational expenses; for any business or commercial purpose; to purchase securities; or for gambling or illegal purposes.

Borrowers in these states are subject to these minimum loan sizes: Alabama: $2,100. California: $3,000. Georgia: Unless you are a present customer, $3,100 minimum loan amount. Ohio: $2,000. Virginia: $2,600.

Borrowers (other than present customers) in these states are subject to these maximum unsecured loan sizes: Florida: $8,000. Iowa: $8,500. Maine: $7,000. Mississippi: $7,500. North Carolina: $7,500. New York: $20,000. Texas: $8,000. West Virginia: $14,000. An unsecured loan is a loan which does not require you to provide collateral (such as a motor vehicle) to the lender.

7.99% - 29.99%

24 to 60

months

$7,500

$40,000

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure.

The loan terms presented are not guaranteed and APRs presented are estimates only. To obtain a loan you must submit additional information and documentation and all loans are subject to credit review and our approval process. The range of APRs is 7.99% to 29.99% and your actual APR will depend upon factors including your credit score, usage and history, the requested loan amount, the stated loan purpose, and the term of the requested loan. To qualify for a 7.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available. All loans are made by Cross River Bank and MetaBank®, N.A., Members FDIC.

Up to 35.99%

12 to 60

months

$1,000

$25,000

SEE OFFERS Secured

on LendingTree’s secure website

SoFi

5.99% - 19.96%*

24 to 84

months

$5,000

$100,000

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure.

Fixed rates from 5.99% APR to 19.96% APR (with AutoPay). SoFi rate ranges are current as of May 14, 2020 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, income, and other factors. See APR examples and terms. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

1. LightStream

LightStream is a popular online lender that offers personal loans for almost any reason. Their personal loans come with a fixed interest rate, a fixed monthly payment and a fixed repayment timeline that dictates exactly when your loan will be paid off from Day One.

Although LightStream doesn’t list a minimum credit score requirement, they do note that their loans are available for consumers with “good credit.” LightStream also allows people to apply for their loans with a joint applicant. LightStream personal loans come with no fees — no origination fee, no application fee and no prepayment penalties for paying off your loan early.

LightStream personal loans may be best for:

  • Anyone who needs to borrow a lot since LightStream personal loans have a higher borrowing limit than some of their competitors

2. LendingClub

LendingClub is another loan company that allows joint applicants to apply for personal loans. Unlike other lenders on this list, however, LendingClub is a peer-to-peer lender that gets its funds from other individuals who agree to invest in the platform.

LendingClub lets consumers borrow up to $40,000 for debt consolidation, home repairs, emergency expenses and many other purposes. Interest rates can be on the low side provided you have good or great credit since the lender’s lowest advertised rates start at 10.68%. However, LendingClub’s minimum credit requirements are not specified.

LendingClub also considers applicants with a maximum debt-to-income ratio of 40%, meaning that your monthly debt obligations cannot make up more than 40% of your monthly gross income.

LendingClub personal loans may be best for:

  • Borrowers with fair credit who may not be able to qualify for a loan with other lenders
  • Anyone who needs to borrow less than $40,000 with a joint borrower
  • People who want to borrow from individual investors rather than a traditional bank

3. OneMain Financial

OneMain Financial is a personal loan company that offers higher interest rates than some of their competitors. However, OneMain does extend personal loans to borrowers with “fair credit” who may not be able to get a loan elsewhere.

Loan amounts are offered between $1,500 and $20,000 and repayment terms are available for up to five years. OneMain Financial also allows borrowers to apply for a loan with a cosigner, which could help you qualify for a lower interest rate if your credit is poor. It’s important to note, however, that will you will have to visit a physical OneMain Financial branch to close on your loan.

OneMain Financial personal loans may be best for:

  • Individuals who need a cosigner for their loan
  • People with fair credit who may not qualify for a personal loan with another lender
  • Anyone who needs to borrow up to $20,000 and pay it back for up to five years

4. FreedomPlus

FreedomPlus is another personal loan company that focus on borrowers with less-than-stellar credit. Loan amounts are offered up to $40,000 and you can repay for up to five years. FreedomPlus does charge an origination fee from 0.00% - 4.99% of your loan amount, but they don’t charge any penalties if you pay your loan off early.

While FreedomPlus doesn’t list an exact minimum credit score to qualify, they do list a maximum debt-to-income ratio of 40%. FreedomPlus also allows co-borrowers on their loan applications, which can make it easier to qualify if you do not have the income or credit to qualify on your own.

FreedomPlus personal loans may be best for:

  • Individuals with fair credit who have a co-borrower to apply with
  • Anyone who needs to borrow up to $40,000 for nearly any reason
  • Someone who can’t qualify for a personal loan without any fees

5. Mariner Finance

Mariner Finance is another personal loan company that allows individuals to apply for a personal loan with a cosigner. This company does offer interest rates as high as 35.99% depending on your creditworthiness, but they do not list a minimum credit score to qualify. For that reason, Mariner Finance may be a good option for consumers who may need to pay a higher interest rate due to credit mistakes they’ve made in the past.

While Mariner Finance does have looser requirements to qualify for their loans, it’s important to note that they only operate in 22 states: Alabama, Delaware, Florida, Georgia, Indiana, Illinois, Kentucky, Louisiana, Maryland, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia and Wisconsin. Fees can vary on personal loans from Mariner Finance as well, so make sure to read the fine print and understand all fees before you move forward with one of their loan options.

Mariner Finance personal loans may be best for:

  • Individuals who need a cosigner for their personal loan
  • Anyone with less-than-stellar credit who can’t get a loan with another company
  • People who need to borrow up to $25,000; however, note that loans greater than $7,000 or less than $1,500 need to be funded at a physical branch

6. SoFi

While SoFi is mostly known for their private student loans and student loan refinancing options, this company also offers personal loans. SoFi personal loans are available for people in every state except for Mississippi, and they allow co-borrowers on the same loan application.

One big benefit of personal loans from SoFi is their lack of fees. This company doesn’t charge an origination fee for their personal loans, nor do they charge prepayment fees or late fees. SoFi even has a program that allows you to pause your loan payments if you lose your job. SoFi makes it possible to see if you could get approved for a loan without a hard inquiry on your credit report.

SoFi personal loans may be best for:

  • People with good credit who want to apply with a co-borrower
  • Anyone who needs to borrow a lot since personal loans amounts go up to $100,000
  • People who want a personal loan without any fees

Conclusion

If you need a personal loan with a cosigner or a co-borrower, make sure to check out all the companies on this list. While we included some lenders that charge higher interest rates and fees, our list of top lenders for personal loans with a cosigner was created to include options that could work for borrowers with all credit ratings and financial situations.

As you compare loan options, make sure to read the fine print and compare loan terms, interest rates and fees. With enough research, you’ll have a good shot at finding a personal loan that meets your needs — with or without a cosigner.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Personal Loans

The Ultimate Guide to Personal Loans

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Personal loans are a versatile form of credit. You can use them to consolidate other high-interest debts, pay for home improvements and more. Because they usually come with fixed interest rates and repayment schedules, you know exactly how much you need to pay each month and when your debt will be paid in full.

Still, taking on any type of debt is a serious responsibility. This personal loan guide will help you learn more about how personal loans work, which pitfalls to avoid and some alternatives to consider.

Part I: Personal Loans 101

How do personal loans work?

When you apply for a personal loan, you borrow a specific amount of money — most often at a fixed interest rate — for a set amount of time. Then you pay off your balance monthly until it’s paid in full.

The terms of your personal loan will depend on your unique financial situation and your lender. The loans are typically offered in amounts ranging from $1,000 to $50,000, and potentially even higher, depending on the lender. As for the repayment period, the loans’ terms often range from one to five years, but can potentially go up to 15 years for purposes such as home improvement.

Personal loans are unsecured debt, meaning they’re not secured by an underlying investment like a home or a car. For that reason, they usually come with higher interest rates than you might get with a mortgage or auto loan.

To get a real sense of how much a personal loan will cost you, keep an eye on the annual percentage rate, or APR. It includes interest and other costs, which could include an origination fee. An origination fee is a loan processing fee that can typically be 1% to 8% of the loan amount; however, some lenders, such as Lightstream and Discover, don’t charge any origination fees at all.

Pros and cons of personal loans

Pros

  • Interest rates can be lower than credit cards. While interest rates on personal loan offers have risen lately, they can still be a good option for consolidating high-interest credit card debt, especially if your credit is top-notch. The average APR on a personal loan offer from a lender is now 11.81% for borrowers with excellent credit, and 15.61% for those with very good credit, according to recent data from parent site LendingTree; in contrast, companion site CompareCards lists the average APR on all credit accounts is 15.09%.
  • Quick access to funds. Depending on your lender, you may receive funding for a personal loan in just a day or two.
  • Predictable payments and interest. Because personal loans generally come with fixed rates and payment terms, you may not have to worry about your interest rate or monthly payment going up. That makes it easier to budget.

Cons

  • Could lead to overspending. Personal loans can be used for almost any purpose, which could lead you to borrow more than you can afford to repay each month.
  • Higher interest rates than some loan products. For example, if you have equity in your home and good credit, you may be able to get a better rate with a home equity loan or line of credit.
  • Damage to your credit if you don’t pay. Some lenders offer options for borrowers facing financial difficulties, and may work with you if you lose your job or face other financial troubles. However, your credit might be damaged if you ultimately can’t make your payments.

What you may need to qualify for a personal loan

  • Good or excellent credit. If your credit score is 640 or lower, it will likely be more difficult to get approval for a personal loan (although some personal loan companies might still work with you). By contrast, having good credit (a FICO score of at least 670) will give you more borrowing options, and a score of 740 will let you qualify for loans with the best interest rates and terms.
  • Low debt-to-income ratio. Lenders might be hesitant to lend money if your debt-to-income ratio is too high. This ratio is determined by taking your total monthly recurring debt and dividing it by your gross monthly income. For personal loans, lenders usually like to see a DTI ratio of 36% or less. Still, even with a high DTI, you may qualify for a personal loan if your credit score meets a lender’s criteria, and you have both a solid income and credit repayment history.
  • Cosigner or collateral. If you have a bad credit score, you may need a cosigner with good credit or collateral to help you qualify for a personal loan.

How to pick the best personal loan

Here are tips that can help you identify a personal loan that’s right for you:

  • Shop around with different lenders. Gather information on personal loans to compare interest rates and loan terms from various lenders.
  • Read the fine print. Make sure you understand your contract, your monthly payment and all terms and potential fees.
  • Read reviews. Reading reviews of top personal loan companies can help you gauge the quality of each lender and what your experience might be like.

Part II: Common Uses for a Personal Loan

You might be surprised to know just how many uses personal loans can have. According to an April 2020 report from LendingTree, some of the top reasons applicants seek personal loans include:

  • Credit card refinance: 32.0%
  • Debt consolidation: 31.0%
  • Home improvement: 8.5%
  • Major purchases: 5.0%
  • Car financing: 4.3%
  • Business: 1.8%

These numbers don’t mean personal loans are the right choice in every borrowing situation. Here’s some more information about potential uses, along with some pros and cons:

Common uses for personal loans

Debt consolidation

If you’re struggling to pay back several types of debt, a personal loan may let you streamline payments and pay less interest overall. One caveat: if you can qualify for one, a 0% balance transfer credit card could be a less expensive option for combining debt.

Credit card refinance

Personal loans often have lower interest rates than credit cards — just make sure you’ll actually save money after taking into account a loan’s interest rate, origination fee and repayment term.

Home improvement

If you don’t have enough equity in your home to qualify for a home equity loan or line of credit, a personal loan can help finance home improvements. It may, however, come with a higher interest rate.

Major purchase

A personal loan might cost less in interest than a credit card for that big buy of yours. Still, before taking on new debt, consider whether you really need that purchase now — or whether it would be cheaper to save up and pay cash.

Car financing

A personal loan could be an option for buying a car, but it might be easier to qualify for an auto loan, as well as pay less interest and fewer fees (a car loan uses the vehicle as collateral).

Small business financing

If you’re starting a business and aren’t yet earning money, it may be tough to qualify for a business loan. A personal loan can help get your business off the ground. One potential red flag: If your business goes under, you’ll still have to pay back the loan or risk damaging your credit.

Medical expenses

Taking out a personal loan to pay for medical expenses can keep medical bills from going to a collection agency. However, first see if your medical provider provides payment help, as many do. They may be willing to work with you to pay off your balance — and not charge interest.

Part III: Personal Loan Traps and Scams to Avoid

Here are some personal loan traps you should consider:

Advance loan fees

Occasionally, a fraudulent loan company will offer outrageous loans and loan terms with a catch: You must pay upfront fees or “insurance” to qualify.

Look out for lenders who ask you to wire funds via Western Union or MoneyGram — reputable lenders won’t ask you to pay money upfront.

‘No credit check’ loans

According to the Federal Trade Commission (FTC), a lender who isn’t interested in checking your credit is a red flag.

Steer clear of ads and websites that promise “Bad credit? No problem” or “We don’t care about your past,” the FTC cautions. These slogans usually signal a scam.

Precomputed interest

Some personal loans might come with precomputed interest, which means they use the original payment schedule to calculate interest, even if you make payments early. This forces you to pay more interest over time, even if you make larger payments or try to pay off your loan early.

Prepayment penalties

Some personal loans tack on a prepayment penalty if you pay your loan off early. And while prepayment penalties aren’t that common, they are unnecessary. Be sure to read through your loan terms to check for a prepayment penalty before you sign the agreement. If you find one, consider opting for another lender.

Part IV: Alternatives to a Personal Loan

Personal loans vs. credit cards

Credit cards can be a great deal if you pay them off monthly, as you have the potential to earn rewards.

Personal loans vs. HELOCs

A home equity line of credit (HELOC) is a revolving line of credit secured by your home. HELOCs often have lower interest rates than personal loans, and you may be able to deduct the interest if you itemize your taxes. By contrast, interest paid on your personal loan is not tax-deductible.

Personal loans vs. cash-out refinance

A cash-out refinance lets you take out a new mortgage that’s more than what you now owe, and pocket a portion of the loan as cash. It usually comes with a lower interest rate than a personal loan, but with longer terms, so you could end up paying more overall. If you’re opting for a cash-out refinance, check this calculator to determine how much you might be able to borrow, and what your new monthly mortgage payment will be.

Unsecured personal loans vs. secured personal loans

A secured personal loan requires borrowers to use an asset, like a vehicle or certificate of deposit (CD), as collateral. A lender can repossess the asset if the borrower fails to make payments, so interest rates on secured personal loans tend to be lower than those on unsecured loans.

FAQ: Personal loans

The amount you can borrow varies by lender, but generally ranges from $1,000 to $50,000.

Yes, if you use it to consolidate high-interest debts from credit cards or other loans. To get out of debt faster, make sure your new personal loan comes with a lower interest rate than you’re already paying, along with few or no fees.

Your interest rate depends on the type of loan you apply for, how much you want to borrow and the quality of your credit. While each lender is different — for example, some will work with you if your credit isn’t ideal — a FICO score of at least 670 will give you more options.

If you were denied a personal loan due to poor credit, the best thing you can do is work on improving your credit rating. Pay bills on time, pay off debt to reduce the amount of available credit you’re using and avoid opening or closing too many accounts.

Thanks to the internet, you can apply for a personal loan online and from the comfort of your home. You can also compare fees and interest rates from top personal loan companies by visiting this page.

If you apply for a personal loan, a hard inquiry will be placed on your credit report, but any negative hit your score takes will be short-lived. Your credit score will more likely take a larger hit if you borrow too much and can’t repay. On the other hand, repaying your personal loan on time, and ultimately in full, might actually help your score in the long run.

If you’re cash-strapped, this may sound tempting, but most mortgage lenders discourage it. Before approving you for a mortgage, lenders will look at your debt-to-income ratio, so taking on a personal loan to afford a down payment might actually disqualify you in the end.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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What Is Predatory Lending? What You Need to Know

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Predatory lending occurs when a borrower is pushed (or tricked) into getting a loan with terms that are unclear or deliberately deceptive.

If you’ve ever felt pressured to take a loan where the terms weren’t what you expected, most likely you’ve had a brush with predatory lending. Maybe you also felt harassed — or even threatened — into signing a loan without fully understanding the terms, or before you were ready.

Any lender can engage in predatory lending, whether it’s for a mortgage, car purchase, home improvement loan or a similar borrowing situation. Here’s a guide to what you need to know about predatory lending: common warning signs, ways to fight back and some of the lending alternatives you might want to consider instead.

How does predatory lending work?

With a predatory loan, the loan is most often not what the lender initially described. For example, maybe you were promised a fixed-rate mortgage, as well as a long repayment term, for that new home. Instead, you’re handed an adjustable-rate mortgage — with a very short repayment term that makes it almost impossible to pay back without an expensive refinance that your lender offers to do too. If that happens, you’ve been subjected to a classic bait-and-switch move in predatory lending.

Some borrowers are especially vulnerable to this type of deceit. Elderly borrowers, for example, may have a lot of equity in their homes, but limited access to income or credit. Predatory lenders also prey on borrowers who need emergency cash to pay for unexpected medical bills, or home or auto repairs.

Taking out a payday loan often causes problems too. You might get your money quickly and with little fuss, perhaps at a storefront or online, but those loans almost always carry exorbitantly high interest rates.

Coronavirus: Beware predatory lending practices

In times of crisis, certain lenders may decide to take advantage of consumers who might be experiencing dire financial circumstances. The economic uncertainty caused by the new coronavirus pandemic is no exception, and U.S. lawmakers have already expressed concern about how financially vulnerable Americans may be as they face salary cuts, job losses and the prospect of an imminent recession.

If the pandemic has left you facing financial hardship, avoid using predatory loans to stay afloat. Instead, you may be able to access needed funds — as well as deferments on loan payments, like those that may be available for mortgages — from your bank or credit union. You might also be eligible for an Economic Impact Payment and other resources provided by the federal 2020 CARES Act. To learn more about this major piece of legislation, check this link from our parent company LendingTree.

Predatory lending practices: 8 warning signs

High interest rates and fees

High interest rates and fees are key signs of a predatory loan. If you’re applying for a loan and the interest rate or the loan and documentation fees seem high, ask your broker if they’ll be getting a yield-spread premium from the lender. This is a commission your lender may be paying the broker in exchange for offering an inflated interest rate.

Lack of information

If loan terms aren’t clear to you — or a lender can’t answer your borrowing questions directly — there’s a good chance you’re dealing with a predatory lender. Avoid signing on the dotted line if a lender can’t clearly tell you whether your interest rate (or any other terms) will change over the course of the loan, what fees will be included or if there are prepayment penalties.

False information

Predatory lenders often misrepresent loan terms or may even lie about them. Beware of loan terms that seem too good to be true; they most likely are. Language like “easy payment terms, “no payments for 90 days” or “easy credit” should raise red flags.

Pledges not to perform credit check

Lenders routinely perform credit checks before approving and issuing loans to ensure the borrower can afford to repay. If a lender tells you “no credit check required,” chances are that lender is going to require some form of collateral, possibly in the form of the title to your car or access to a bank account. It’s never a good idea to put other assets at risk for a loan you might not even be able to repay.

Unusual prepayment penalties

When you take out a loan, you generally have the option of either repaying the loan early or refinancing, usually without paying any penalties, or at least with very limited fees. A predatory loan, however, may include steep fees for prepayment and refinancing, and these fees can add up to thousands of dollars.

Doesn’t report to credit bureaus

One of the advantages of taking out any kind of loan is that it can help you build a solid credit history, assuming you make payments on time and your lender reports the loan to credit bureaus. Lenders are not legally required to report loans to bureaus — however, if your loan isn’t reported, it might be a sign your lender doesn’t necessarily have your best financial interests in mind.

Lender access to bank account required

Payday lenders, in particular, are likely to ask for bank account information before handing over a high-interest, short-term loan. If you allow access — and are economically vulnerable — you may get hit with overdraft charges if sufficient funds aren’t available to cover the loan.

Hidden balloon payments

Often, a predatory lender may convince a borrower their loan comes with low monthly payments. The borrower later learns those low rates applied only for a short period of time, and that they will “balloon” at the end of the life of the loan unless the borrower doesn’t refinance. If you’re constantly feeling pressured to refinance your loan, persistent “flipping” may be costing you plenty in unnecessary fees and points.

Anti-predatory lending: What are the protections?

Fortunately, there are legal protections in place to reduce the practice of predatory lending and help consumers fight back. Here are some of the laws that provide support and resources:

  • Equal Credit Opportunity Act (ECOA): This law protects consumers from lending discrimination due to age, gender, race or ethnicity. This law aims to rectify the denial of lending opportunities to minority borrowers, who may have encountered predatory lendering because of discrimination by more traditional lending institutions. If you think you’ve been discriminated against, report it to your state attorney general’s office.
  • Truth in Lending Act (TILA): This legislation requires lenders to clearly, accurately and fairly disclose credit and loan terms to borrowers. It also gives borrowers three days to back out of a potential loan without having to pay a financial penalty.
  • Home Ownership and Equity Protection Act (HOEPA): Lawmakers passed this law in 1994 with the specific goal of protecting borrowers from abusive home lending practices and high-cost mortgages, and further amended it in the years following its enactment. For borrowers getting high-cost mortgages, the act directs lenders to provide them with all necessary disclosures and loan terms, and encourages or requires homeownership counseling.

Most states also have laws designed to protect borrowers from predatory lending. These laws range from those that prevent payday loan companies from operating within the states, to caps on the interest rates the companies can charge. Illinois, for example, limits the interest rate that can be charged on payday loans to 15.5%.

To find more about what’s allowed in your state, visit this site from the National Conference of State Legislatures.

Alternatives to predatory lending

Some credit unions offer payday alternative loans, or PALs, to account holders with poor credit who need a short-term loan. A PAL usually offers more financial stability and less risk than a payday loan; for example, you can pay it back over a period of up to six months. PALs are regulated by the National Credit Union Administration, a federal agency. In order to apply for a PAL, you’ll need to belong to a federal credit union.

If you’re in a tight financial spot, you may be able to receive a payroll advance where you work. Many employers let employees borrow against upcoming paychecks to cover a critical, unexpected expense. In general, you can expect a payroll advance to be far less expensive what a payday loan might cost.

If you have either poor credit or no credit, you can still get a personal loan while steering clear of predatory lending practices. Credit unions, in particular, can be solid sources of personal loans for members who have poor credit, and even traditional lenders may be willing to provide a personal loan to someone with bad credit who also has a cosigner.

A credit card is basically a revolving line of credit you can use to borrow up to the credit limit set by the lender, depending on how much credit you have available and as long as you meet the required monthly minimum payments. Pick a credit card with the lowest interest rate you can get, or take advantage of the introductory 0% interest rates many lenders offer. Then, pay off your credit debt as quickly as possible.

It may feel awkward asking family or friends for a loan, but it may give you more flexible repayment terms. The biggest drawback: If you fail to pay back the loan or make timely payments, your relationship may suffer.

Low-income borrowers who want to avoid predatory lenders can contact the National Foundation for Credit Counseling (NFCC) for help with debt management, and to find a reputable nonprofit financial counselor within the foundation’s national network.

If you’re having trouble meeting financial obligations, tap your lender for potential options. For example, a credit card company might be willing to offer a lower monthly minimum payment or a lower interest rate.

FAQ: Predatory lending

Predatory lending occurs when lenders push (or trick) a borrower into getting a loan with terms that are unclear or deliberately deceptive. With any loan you should always feel comfortable with the terms, and the working relationship you have with your lender. If you don’t, it might be time to step back.

Balloon-type mortgages can be predatory if a lender misrepresents or doesn’t ensure a borrower understands payments will escalate over time. The Federal Trade Commission warns consumers to avoid car title loans, as they’re typically short-term loans that come with a triple-digit annual percentage rate (APR). Because the loans require borrowers to hand over the title to their automobile as collateral, you risk losing a much-needed possession.

Predatory student loans often feature excessively high interest rates. The current interest rate on a federal student loan ranges between 4.32% and 7.08%, so be careful if you spot a much higher rate. Student loans that have prepayment penalties or require a car or home as collateral might also be considered predatory.

Be on the lookout for automobile dealers who load up a loan with extra “junk” fees, like for service contracts, rustproofing and theft deterrents. Also look for loans that dealers finance in-house; they may come with an APR that’s far higher than what a bank or credit union might offer.

To get out of a predatory loan, try refinancing the loan with a reputable lender. Credit counselors, often working for free, may be able to help too; you could start by contacting the nonprofit Legal Services Corporation, or HUD, if you need housing help. In addition, the aforementioned NFCC says it will work with clients regardless of their financial situation; according to the organization’s website, “we don’t turn anyone away.”

If you think you’ve been a victim of predatory lending, report it to the Federal Trade Commission or to your state attorney general’s office. If the predatory lending involves a local home improvement contractor, contact the Better Business Bureau for guidance.

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