When you take out a loan, it is important that you know your rights and responsibilities going forward. Depending on the terms of the loan, you could be risking your house, car or other property if you fail to repay it in full. In some cases, you may also risk wage garnishment, a bank levy or other possible penalties.
Know Your Target Terms Before Shopping for a Loan
Prior to looking for a lender, it may be a good idea to determine what type of loan that you want or need. If you are looking for a lower interest rate, it may be worthwhile to look into a secured loan. However, if you don’t want to put up collateral, you should look for an unsecured loan.
Those who don’t know what collateral is or the difference between a secured and unsecured loan may want to become familiar with those terms before asking for money. Credit cards are examples of unsecured loans while car title loans are secured with the title to the borrower’s vehicle.
Loan Terms Should Be Clearly Explained Before You Borrow Money
State and federal laws dictate what lenders must tell you before you agree to borrow any amount of money. For instance, you need to be told what your interest rate is, what your monthly payment is and when your monthly payment is due. A lender may also have to warn you about the dangers of making a minimum payment and how much you could save by paying more than that amount in a given month.
Most Loan Agreements Are Binding Assuming That They Are Legal
As long as the terms of a loan adhere to state and federal law, the terms are binding as soon as a borrower agrees to them. This is true regardless of what the interest rate may be or if a borrower doesn’t think that he or she can keep up with payments. While a lender may allow you to renegotiate the terms, it is generally not obligated to unless state or federal law demands it.
Beware of Tribal Lenders
Native American reservations are considered sovereign lands that are generally not subject to American usury laws. Therefore, if you borrow from a Native American tribe, you could be forced to adhere to the loan terms that you agreed to with little to no recourse. This is true even if the lender says that they are located in a city or state located in the United States.
You May Be Forced to Arbitration to Handle Disputes
If you have a dispute about a missed payment or how a payment was applied, you may be forced to go to arbitration. In fact, the lender may get to choose where the arbitration hearing will take place. Therefore, you may have already given up your right to sue or waived other legal rights just by signing the contract. While you may still attempt to sue or take other actions against a lender, your loan agreement may be what judges use when making any ruling in your case.
Can You Pay the Loan Off Early?
Most loans don’t contain a prepayment penalty. This means that you can make additional payments to reduce or eliminate your loan balance ahead of schedule. However, if your loan has such a clause, you may have no choice but to pay according to the schedule set by the lender.
Before you agree to borrow money, it is important that you understand the agreement in full. Prior to signing any paperwork, you may want to ask a friend, financial adviser or attorney if there are any terms that may not be in your best interest. Even if you do borrow the money under those terms, at least you know how they can affect your finances going forward. 🙂