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Teaser rates
Who are they teasing? The person whose name is on the bill. Read the fine print, and go with a lender who's willing to give you a good rate and stick with it.
"Free" vacations
"If it's a product that's that good, you don't have to add something to make it attractive," says Garcia.
High-pressure tactics
Are you being urged to sign immediately? Encouraged to falsify your application information to get the loan? Or asked to sign blank forms? "Don't do that," says Garcia. Instead, have a third party look through the paperwork. Some possible candidates: an accountant, lawyer or someone at your local bank (if they aren't making the loan). Or call a local credit counselor affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counselors.
"If it's good today, it will be good tomorrow," says Garcia.
Asset-oriented
lender
If the lender is more focused on your assets rather than your income, watch out. Whether you're pledging your car title or your home equity, if you're a bad risk and the lender doesn't care, that should set off the warning bells. "The biggest thing that would send me running: 'no job, bad credit, bankruptcy -- no problem because you have equity in your home,'" says Garcia. "If you don't have income, you're going to default, and you will be out of your home."
"Little"
red flags
You may be able to negotiate
a couple of unfavorable terms, but if
the contract is loaded with them, you
might just want to walk. A multitude
of bad loan terms in combination could
create a financial disaster.
The most dangerous triumvirate: an adjustable rate, prepayment penalties and balloon payments. "You really don't want to have these combinations of terms," says Stegman. Not only are you setting up a financial risk, but you're also limiting your escape options.
Terms you don't understand
Loans have gotten a lot more complicated. And with the addition of concepts like interest-only loans, adjustable rates and negative amortization, you might feel like you need an economics degree just to shop around. The truth is you might be better off with a more standard loan.
"Borrowers have to be asking a lot more questions than they were before," says Fishbein. Especially tricky: What's the payment, how often will that change and what's the worst that it could get? And if increases are capped, does that mean the lender will add payments to the end of the loan?
"You need to do the math," he says."And
ask a lot of questions."
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