Tough times for borrowers
The fact is that in today’s market getting a loan is tough and getting tougher, especially for first home buyers, the self-employed and those with even minor blemishes on their credit file. If you fall into this category or you’re outside mainstream lender guidelines you may find yourself dealing with unscrupulous brokers or lenders (or even outright fraudsters) who are more concerned with lining their own pockets than with what’s in your best interests.
What’s worse, these types of operators often prey on the most vulnerable and financially unaware members of our community. And they do not confine themselves to just home loans, but encompass other lending like unsecured loans including payday and other types of short–term credit.
So what are some of the indicators that you’re dealing with a dodgy lender or broker? And how do you protect yourself? Set out below are some examples and some hints and tips to safeguard you and your family’s financial well-being:
1. Cold calling
Many legitimate businesses and organisations use cold calling techniques (i.e. telephone or e-mail) to market their products and services. For instance charities use this approach when they’re raising money through the sale of raffle tickets or requests for donations.
However loan scammers are adept at using this approach for less philanthropic purposes and hook potential borrowers with promises like cheap loans, no credit checks, guaranteed approval and repayment holidays. Some may not be lenders at all and are simply after your personal information which they use, or pass on to a third party, to commit fraud against you.
So you should never disclose your personal information to anyone you don’t know. And if the deal looks too good to be true, check the organisation out before doing anything – go online (look especially for any negative commentary on their activities including complaints from existing customers), talk to family and friends, contact or search ASIC (Australian Securities and Investment Commission) to ensure they have a valid Australian Credit Licence and speak to industry organisations like the MFAA (Mortgage and Finance Association of Australia) and the ABA (Australian Bankers Association) to see if they have any information they can share or whether the organisation is a member.
2. Bait advertising
There are strict rules on advertising home loans including the use of Comparison Rates and it is illegal to place an advertisement that is false or misleading. However, that doesn’t stop some home loan providers from sailing close to the wind. They hide important information in the small print including information about fees and charges and fail to adequately disclose loan qualification requirements. Often their loan products are only available to a small cohort and their aim is to get you to respond so they can upsell you to more expensive products, which not surprisingly, are more profitable for them. Don’t be upsold. If anyone tries this on you, walk away and find another lender.
3. Limited time offer
A tactic used by some operators is to get you to act quickly. They want you to sign up before you’ve had the chance to reflect on the offer or thoroughly read all the documents. Don’t fall for it. Never do or sign anything until you fully understand what you are committing to and never before you have sought independent legal and financial advice. This is especially important if you’re thinking about taking out an interest-only loan or a loan where the interest rate is higher and/or loan terms are less favorable than what’s being offered in the market.
4. Fees in advance
Another ploy to get you to commit or to perpetrate fraud is to require you to transfer money into the lender’s or broker’s bank account to cover the “upfront costs” of securing your loan. And often the amounts can be substantial. Alarm bells should be ringing if you’re asked to pay anything in advance, especially if you’re asked for your credit card details. Never pay anything upfront. For instance, brokers are paid by the lender so you shouldn’t have to pay them anything. And remember, paying upfront doesn’t mean you’ll get your loan - it more likely means you’ve lost your hard earned cash.
5. Falsifying your loan application
Some brokers (and sometimes lenders) may encourage you to falsify your loan application to improve the chances of getting your loan approved. They may ask you to inflate your earnings or not disclose other financial commitments or prior debt problems. Again, don’t do it. Lenders are under strict obligations to ensure you can afford to repay your loan and this obligation extends to you as well. If lying is the only way to get your loan approved, then you shouldn’t borrow. You’re only setting yourself up for major heartache and potential financial ruin down the track. And remember good lenders will check what you tell them so they will find out the truth, eventually.
A final thought
Don’t be seduced into taking out a home loan (or any loan for that matter) on the basis of enticements like cheap rates, easy finance or guaranteed approval, especially from lenders or brokers you’ve never heard of or where you’ve been approached out of the blue. Red flags should be flying. You should always research what’s being offered and by whom before you act.
You don’t want to become victim of dodgy lending and equally worse, of fraud. If in doubt, don’t sign anything and walk away. If you get caught, contact ASIC or your Local Office of Fair Trading. Remember, prevention is better than the cure, so tread cautiously and skeptically when you are offered the home loan deal of a lifetime.
Have you been the victim of loan scammers or unscrupulous lenders? What did you do about it? Have you got any tips to help others avoid dodgy lenders and brokers?
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Peter Boehm's first book, The Great Australian Dream: A Guide to Buying Your First Home, is available online and at all good bookstores. It discusses the numerous challenges Australians face in entering the property market as owner occupiers and investors and provides straightforward advice, hints and tips on getting past them.
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