When was the last time you heard someone raving about their lender?
If it’s been a while, there may be a good reason for that: Predatory lending practices do exist. But if you know what to look for, it’s possible to find a bank, credit union or online company you can trust.
Here are the attributes of a lender that won’t rip you off:
- Clarity. Does the company drown you in financial jargon, or does it explain things in plain English? A good lender clearly spells out how to qualify, what the loan terms are, how the application process works and what happens if you run into trouble making payments. If you encounter a confusing website or a vague customer service representative, that’s a red flag.
- Transparency. Do you need detective skills to hunt down the cost of your loan? “A good, honest product will tell you what the cost is going to be,” says Lauren Saunders, associate director at the National Consumer Law Center, a Boston-based consumer advocacy organization. All lenders have to disclose the annual percentage rate — the sum of interest and all fees — on a loan, but good lenders go a step further to break down upfront charges, late fees and the total cost of the loan in dollars.
- Affordability. All reputable lenders pull your credit information, check your current debt and ask for your income to see whether you can afford to repay the loan. A good lender gives you a loan amount that closely matches your financial need, says John Thompson, chief program officer at the Center for Financial Services Innovation, a Chicago nonprofit research organization. Your loan offer should fall into the Goldilocks zone: Too much money makes it unaffordable; too little forces you to borrow again.
- Trustworthiness. The best way to identify a reputable company is to learn about others’ experiences through online searches and by asking friends and family. Good lenders should have positive reviews from independent consumer advocacy websites or product comparison websites, along with strong user testimonials on social media websites. In addition, they should not have regulatory fines from government agencies such as the Consumer Financial Protection Bureau or the Federal Trade Commission.
- Rewards good behavior. A good lender reports your payments to the major credit bureaus. This helps your credit scores if you pay on time and hurts them if you do not. By reporting your payment activity, the lender lets you build your credit, which can give you access to cheaper financial products in the future.
Now that you know how to spot a good lender, shop around to see where you can get the lowest rate to save money on your loan.