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Personal Loans

Best Small 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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Many people default to charging to a credit card if they need to borrow a small amount. But while credit cards offer convenience, you’ll also pay high APRs and interest charges.A wise alternative to credit cards is using small personal loans to make a minor purchase or consolidate small-balance debt. These unsecured personal loans charge rates than can handily beat what you’re paying on a credit card, and can keep you on track to paying off debt.

If you need to borrow a bit of cash, it can be a simple matter of finding a small personal loan that matches your needs. To help you out, we’ve rounded up the best small personal loans that allow you to borrow as little as $1,000.

LendingTree

If you’re in the market for a small personal loan, one of the best places to start your search is with LendingTree. LendingTree can match you with up to five personal loan offers from lenders tailored to your needs in just minutes. You’ll just need to provide a few details about the personal loan you’re seeking, including your desired loan amount.

LendingTree
APR

As low as 3.49%

Credit Req.

Minimum 500 FICO®

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Advertiser Disclosure

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.



As of 17-May-19, LendingTree Personal Loan consumers were seeing match rates as low as 3.49% (3.49% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

LendingClub

LendingClub is an online peer-to-peer lender headquartered in San Francisco that has operated since 2007. To date, LendingClub has served 2.5 million members, with personal loans among its offerings.
It’s also a smart option for small personal loans. You can borrow as little as $1,000 with LendingClub personal loans. That is among the lowest minimum loan amounts available.

APR

10.68%
To
35.89%

Credit Req.

Not specified

Terms

36 or 60

months

Origination Fee

2.00% - 6.00%

SEE OFFERS Secured

on LendingTree’s secure website

LendingClub is a great tool for borrowers that can offer competitive interest rates.... Read More

The fine print
LendingClub has a few basic requirements for its personal loans:

  • You must be a U.S. citizen, permanent resident or live in the U.S. on a long-term visa.
  • You must be 18 or older and hold a bank account
  • LendingClub’s minimum credit scores are not specified, but the average credit score among its loan applicants is 700
  • You’ll need a debt-to-income ratio of 40% or lower

LendingClub has APRs that start fairly low but have a wide range, from 10.68% to 35.89%. It also levies an origination fee of 2.00% - 6.00%, reflected in APRs and deducted from your loan funds at disbursement. You can request a personalized rate quote for a LendingClub personal loan, which it generates with a soft credit inquiry that won’t affect your score.

If you’d like to improve your chances of getting a lower APR, LendingClub allows you to apply for a joint loan by adding a well-qualified co-borrower. You can choose a loan term of 36 or 60 months.

Pros

  • Small personal loans of $1,000 (up to $40,000)
  • Low minimum credit score
  • Get a custom rate quote with a Soft Pull
  • Joint loan option to apply with a co-borrower
  • Apply in just minutes and get funding in a matter of days
  • No prepayment penalty

Cons

  • Origination fees of 2.00% - 6.00% can add to loan costs
  • APRs can range up to 35.89%
  • LendingClub loans aren’t available in Iowa

If you want to borrow a small personal loan, LendingClub is worth checking out. Some borrowers could face higher costs with this lender, but well-qualified applicants will still get a good deal. And with soft credit rate checks that give you a preview of LendingClub’s personal loan offers, you’ll know upfront what you’re likely to pay.

Upgrade

Upgrade personal loans also set minimums at a low $1,000. Launched in 2016 and based in San Francisco, Upgrade is an online lending platform that offers personal loans, personal lines of credit and a free credit monitoring tool.

Upgrade
APR

7.99%
To
35.97%

Credit Req.

620

Minimum Credit Score

Terms

36 or 60

months

Origination Fee

2.90% - 8.00%

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure

Upgrade is an online lender that offers fairly priced personal loans for a term of either 36 or 60 months.... Read More


Personal loans made through Upgrade feature APRs of 7.99%-35.97%. All personal loans have a 2.9% to 8% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by Upgrade's lending partners. Information on Upgrade's lending partners can be found at https://www.upgrade.com/lending-partners/.

The fine print
Upgrade’s minimum credit score for personal loans is 620. To apply, you’ll also need to meet these eligibility requirements:

  • Be a U.S. citizen, permanent resident or visa holder
  • Be 18 or older (19 or older in Alabama)
  • Have a valid email address and bank account

Generally, Upgrade offers personal loans from $1,000 up to $35,000. But the loan minimum in Georgia is $3,005, and $6,005 in Massachusetts. Additionally, Upgrade loans are unavailable to residents of Colorado, Iowa, Maryland, and West Virginia.
Upgrade personal loan APRs range from 7.99% to 35.97%, which reflect a one-time origination fee of 2.90% - 8.00%. It provides an option to check your rate through a soft inquiry that won’t affect your credit score. You can choose a loan term of 36 or 60 months, and set your preferred payment due date.

Pros

  • Borrow as little as $1,000 (up to $35,000)
  • Get a personalized rate offer through a soft credit check
  • Set your own due date for personal loan payments
  • Upon approval, loans are funded within four business days
  • No prepayment penalty

Cons

  • Origination fee of 2.90% - 8.00%
  • APRs up to 35.97%
  • Loans aren’t offered in six states, and minimum loan amounts can vary

With the ability to borrow as little as $1,000 and APRs that can beat or compete with credit cards, Upgrade can be a smart way to finance minor expenses or consolidate small-balance debts. Just make sure you don’t live in one of the eight states in which Upgrade either doesn’t offer personal loans or has higher loan minimums.

Upstart

Another place to look for small personal loans is online lender Upstart, which provides loans between $5,000 and $30,000. Upstart also stands out for its financial tech, which it uses to go beyond credit score and history to evaluate applications, considering an applicant’s education and job history, too.

APR

6.27%
To
35.99%

Credit Req.

620

Minimum Credit Score

Terms

36 or 60

months

Origination Fee

Up to 8.00%

SEE OFFERS Secured

on LendingTree’s secure website

Upstart is an online lender created by ex-Googlers.... Read More

The fine print
Upstart has a minimum credit score requirement of 620, but it doesn’t just look at credit scores. It also looks at other credit, debt and income details. Plus, it relies on a borrower’s education and employment background to evaluate their ability to repay a loan, sometimes helping them secure a better personal loan rate.

You will also have to meet some basic requirements to be considered for an Upstart loan:

  • Have a valid email address and a U.S. address (not in West Virginia or Iowa)
  • Be 18 or older
  • Have valid identifying information including date of birth and Social Security number
  • Have regular employment with steady income
  • Have a bank account from a U.S. bank

Note that Upstart doesn’t offer loans in West Virginia or Iowa. And while its standard loan minimum is $5,000, it has higher loan minimums in Georgia, Massachusetts, New Mexico and Ohio.

Upstart offers loan terms of 36 or 60 months. Its APRs start at 6.27% and run up to 35.99%, which may include an origination fee of Up to 8.00%. You can request a rate quote and Upstart will use a soft credit inquiry to generate your personalized offer without affecting your credit.
Pros

  • Loan amounts as low as $5,000 (up to $30,000)
  • Flexible underwriting that can mean lower rates for some borrowers
  • Rate quotes offered with soft credit check
  • No prepayment penalty

Cons

  • Higher loan minimums in Georgia, Massachusetts, New Mexico and Ohio
  • Loans not offered in Iowa and West Virginia
  • APRs range up to 35.99%
  • Origination fee may be between Up to 8.00%

The terms and borrowing costs offered by Upstart can get relatively high. But for certain borrowers whose ability to repay a loan is better reflected by their education and employment history than their credit score, Upstart might offer a better deal.

Tower Federal Credit Union

Up next is Tower Federal Credit Union, which is a nonprofit, cooperative financial institution based in Maryland. You’ll need to be eligible to join or be a member of this credit union to get a loan, which can be as easy as making a donation. Then it’s a simple matter to apply for a personal loan.

Tower Federal Credit Union
APR

8.74%
To
11.74%

Credit Req.

580

Minimum Credit Score

Terms

12 to 72

months

Origination Fee

No origination fee

APPLY NOW Secured

on Tower Federal Credit Union’s secure website

Tower Federal Credit Union offers both personal lines of credit and more common signature loans that feature a fixed term. ... Read More

The fine print
As a credit union, Tower Federal Credit Union offers a range of financial products, including personal loans. Its personal loans have no stated minimum amount, so it’s a smart choice for small personal loans. Tower Federal Credit Union also offers savings secured personal loans and lines of credit.

The credit union states few specific eligibility requirements for its personal loans, but it accepts applicants with credit scores as low as 580. It also offers a wider range of loan terms than other lenders, from 12 to 72 months.

The APRs for Tower Federal Credit Union personal loans are based on your creditworthiness and the loan term you choose (shorter terms get you lower rates). These start at 8.74% APR with no stated maximum.

Perhaps best of all is that Tower Federal Credit Union personal loans carry no origination fee or prepayment penalties.

But you’ll have to complete a full personal loan application with the credit union to see what rates it can offer you, which will include a hard pull.
Pros

  • No origination fee or prepayment penalties
  • Wide range of loan terms: 12 to 72 months
  • Low minimum credit score of 580

Cons

  • You must join Tower Federal Credit Union to get a personal loan
  • Full application and Hard Pull required to see rates

If you’re interested in a small personal loan and want more flexibility through loan terms, Tower Federal Credit Union can help. It provides a range of loan terms to meet your needs and keep monthly payments affordable. Just make sure you’re willing and eligible to join the credit union before you apply.

Apple Federal Credit Union

Apple Federal Credit Union is another nonprofit financial cooperative that’s based in Virginia. Before applying, you’ll want to check the credit union’s membership eligibility requirements to be sure you can join and get a personal loan.

Apple Federal Credit Union
APR

9.24%
To
17.24%

Credit Req.

580

Minimum Credit Score

Terms

12 to 60

months

Origination Fee

No origination fee

APPLY NOW Secured

on Apple Federal Credit Union’s secure website

Apple Federal Credit Union offers a variety of benefits that are included with their personal loans, including no early payoff penalties, lump-sum funding, fixed rate payments and maximum loans amounts of $50,000.... Read More

The fine print
Apple Federal Credit Union offers unsecured personal loans as well as lines of credit and savings secured personal loans. It even offers a 0% loan to help new teachers just starting their careers.

This credit union has a low minimum credit score of just 580. You’ll need a government-issued ID to apply, along with proof of income such as a recent pay stub or tax forms. A full application (including a hard credit pull) will be necessary to see if you’ll qualify and what rate you’ll get, as Apple Federal Credit Union doesn’t provide rate quotes.

The credit union’s personal loans have no stated loan minimum, and you can borrow up to $50,000. It charges personal loan APRs starting at 9.24%, with no origination fee or prepayment penalties. Apple Federal Credit Union also offers loan terms of up to 60 months.

Pros

  • No stated minimum loan amount
  • No origination fee or prepayment penalties
  • Several personal loan options, including unsecured and secured loans
  • Low minimum credit score requirement

Cons

  • Must join Apple Federal Credit Union to get a loan
  • No rate quotes provided, and application incurs hard credit check

You’ll need to be eligible for membership with Apple Federal Credit Union to get a loan, and not everyone can qualify. If you can, however, this credit union has accessible personal loans that make it easy and affordable to borrow.

Methodology

Lenders were selected from MagnifyMoney’s personal loans comparisons page when sorted by borrowers looking for $1,000 with good credit who hold a college degree. They were narrowed to the top five picks based on lowest APR.

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.

Written By

Reviewed By

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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Personal Loans

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.

Written By

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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