More often than not, subprime lenders are generalized as loan sharks. Although both may fall into the “non-qualified” lender category, not all subprime lenders are predators.
Loan sharks are lenders who let you borrow money with extremely high interest rates that are usually under unlawful arrangements. Their target preys are those who are desperate to get a loan. Payday and title loans can be good examples of this.
These predators often resort to threats and blackmailing to get you to pay for the borrowed money.
Credible subprime lenders are far from that.
In fact, subprime lenders provide loan opportunities to whose who are not eligible for a Qualified Mortgage loan. It is true that those with bad credit scores and those with repayment setbacks can very much qualify for such loans. But this does not mean that the lenders are nonchalant about their borrowers.
Moreover, not all subprime borrowers have credit or income issues. A self-employed individual may have difficulties qualifying for a conventional loan. Many of them can very well afford the loan, they just lack the necessary documentation to prove it. This is why a subprime loan is a viable option for this group of people.
How Do You Check for Legitimacy?
It there a number of ways to verify if the lender is plausible? Here are some.
Better Business Bureau
Start your search on the Better Business Bureau (BBB). They have an extensive database of companies, corporations, and establishments that are credible in their respective industries. If a lender has been present for a while and they do good business, they must be accredited by the BBB. The BBB website will give you detailed information about the business, including the number of complaints filed against it over a period of time and if these complaints were ever resolved or not.
Local Business Registration Agencies
Approach your state’s financial registration or banking oversight agency. All lending companies and loan brokers in your area are enlisted in their database. They are required to register their businesses in order to put their products and services on the market.
Legit Bank Recommendations
Consider recommendations after being denied of a conventional loan. When you apply for a loan and you do not qualify for it, the bank or the mortgage lender may recommend somebody who can help you. Subprime lenders cater to those individuals who have been rejected by their “prime” counterparts. It works like a referral system. If a bank recommends a subprime lending company, this may indicate that the institution is legitimate in this business.
Ask for a written loan agreement from the lender. Even subprime lenders can provide a detailed loan arrangement should you request for one. You can take this document to a lawyer to have it examined. Loan sharks, however, may refuse to provide you with this piece of document. They will offer very little to no paperwork at all.
If a lender takes items as an “unconventional” collateral, it could be a red flag. Yes, subprime lenders may have your property or car as a collateral to protect them in case you become delinquent. Loan sharks, on the other hand, take items such as professional or driver’s licenses, your passport, or bank cards as security. If this is the case for you lender, start looking for another one.
Violence is a No No!
The use of violence, whether a threat or an actual act, to get you to pay for your debts is against the law. Any lender, licensed or not, is not allowed to do that. If at any point you feel harassed, report immediately to the authorities.
When making loan transactions, you have to be sure on who you are doing business with. Aside from knowing the loan’s rates and terms, learn about the lender’s business history and reputation. Always be sure that you are dealing with a company that is safe and trustworthy.