A GUIDE TO AVOIDING FINANCIAL HARDSHIP BY NOT BORROWING TOO MUCH. Consumer Advisory Guide

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1 A GUIDE TO AVOIDING FINANCIAL HARDSHIP BY NOT BORROWING TOO MUCH Consumer Advisory Guide

2 WARNING: Don t take out a Bad Loan When you borrow money you have an obligation to repay the loan in full. If you cannot repay the proposed loan be careful as some lenders may entice you with money that can only drag you deeper into debt. So deep you could end up losing your home. What is a Bad Loan? As the heading suggests, if you re planning on borrowing, you should avoid taking out a bad loan. By borrowing too much or borrowing when you cannot afford to do so you are getting exactly that a bad loan. You have a responsibility to yourself and family not to over borrow. Lenders will estimate your capacity based on different methods but only you will exactly know your true capacity to repay a loan. Some lenders and or brokers make a business out of targeting people who are usually strapped for cash, financially vulnerable, and with limited negotiation skills or power. The loans such lenders and or brokers push usually have sky-high interest rates and fees. They may exceed the maximum interest rate payable set by state legislation in Australia for lending money. You need to know how to tell a good loan from a bad one. Otherwise, you could end up paying too much, hurting your credit rating and even losing your home. Bad mortgage lending practices can potentially, if you enter into them, strip you as a borrower of home equity and threaten your family with the forced sale of your home or property. La Trobe Financial ( La Trobe ) is a responsible lender and does not want you to enter into a contract to borrow if you cannot afford to repay it. You can and should say NO if you are unsure about any loan offered to you. WHEN BORROWING DOESN T ADD UP Consumer Advisory Guide

3 How to avoid Bad Lenders What tactics do Bad Lenders use? A lender or broker tells you that they are your only chance of getting a loan or owning a home. You should be able to take your time to shop around and compare prices and houses. You are asked to sign a sales contract or loan documents that are blank or that contain information which is not true. This can be a crime, as obtaining finance by deception is punishable by jail; you should never lie about your income or capacity to repay a loan or make false declarations in your application. The cost or loan terms at loan settlement (first advance) are not what you agreed to. You are told that refinancing can solve your credit or money problems. This potentially strips homeowners equity from their homes by convincing them to refinance again and again when there is no benefit to the borrower. Targeting vulnerable borrowers to refinance offers when they know borrowers are in need of cash due to medical, unemployment or debt problems, or knowingly lend more money than a borrower can afford to repay. You are told that you can only get a good deal on a home improvement if you finance it with a particular lender, using high pressure sales tactics to sell home improvements and then finance them at high interest rates. Encourage borrowers to lie about their income, expenses, or cash available for deposits in order to get a loan. Charge high interest rates to borrowers based on things other than their credit history, and charge fees for unnecessary or nonexistent insurance, credit card

4 Protecting Yourself and other products and services. Pressure borrowers to accept higher-risk loans such as balloon loans with interest only payments, and steep payment penalties. Protect yourself from Bad Loans Ask yourself the following as a safeguard checklist: Do I feel pressured? Watch out for harassing phone calls or solicitations from lenders/brokers who say they can give you next-day approval. The same goes for lenders/brokers who offer guaranteed low-interest loans as long as you apply over the phone and pay them money today. Have I shopped around for the best deal? Check with other lenders, including local banks, for their rates and total costs. Compare the interest rates and the total costs for your loan with those of other lenders. Beware of high up-front fees and short term days loan terms. They can turn a loan with low monthly payments into one that actually costs you more in the long run. Is it too good to be true? Watch out for telemarketers, TV or radio ads or doorto-door salespeople who offer easy or quick-approval loans for houses, cars and home repairs but do not disclose the details. Read the fine print to make sure what you re told is what you re getting. WHEN BORROWING DOESN T ADD UP Consumer Advisory Guide

5 Avoid lenders who advertise that having a bad credit history is no problem. Lenders you can trust don t do business this way. Can I trust non bank lenders/brokers? Get references and check them out. Don t rely on their word. Do I understand the loan terms? Before borrowing, you should know exactly what you re getting and what you re paying. Never be afraid to ask the lender to explain any fees, terms or conditions you don t understand. And never sign any blank form. Make sure what you sign is what you agreed to verbally. Don t sign any contract that does not agree with what the salesperson/broker presented. Think twice about a loan that has a large amount due at the end of the scheduled payments. This one final, or balloon, payment could be beyond your ability to repay. Watch out for lenders/brokers who tell you not to worry if you find you can t pay your mortgage they ll help you refinance your loan if you need to. Predatory lenders make money from the high fees and charges they ll charge you to refinance the loan they knew you couldn t afford to repay in the first place. Never sign a loan contract until you have all the facts and understand every part of what you re signing. Ask for advice from someone you trust: a banker, an accountant or a family member or friend who has had experience with getting and paying back loans. Or call a local non-profit credit counselling agency for free help (you ll find them in the Yellow Pages).

6 What is Predatory Lending The ten warning signs of Predatory Lending The questions below are a good way for you to know if someone could be misleading you about a loan and its costs to you. Just because you answer yes to these questions, it does not mean you are or have been a victim. But, if you answer yes to some of the questions, we recommend you contact an independent lawyer or adviser for more information and guidance. 1. Were you encouraged to include false information on your loan application, or to leave out information you considered important to the prospective Lender? 2. Were you asked to leave signature lines or any other important line-item of any form/document blank? Did the lender or broker alter any information you entered on your loan application? 3. Check your loan file with the broker/lender. Are any of the following disclosures missing/ changed? Application Form Income verification form or documents Accepted Letter of offer Mortgage documents 4. Have you refinanced your loan several times, and in each instance increased either your monthly payment and/or the total amount you owe on your home? 5. Do your documents, or regular statements from the lender reveal that your interest rate calculation, repayments or terms are different from what you signed? 6. Is your loan amount on the loan you obtained WHEN BORROWING DOESN T ADD UP Consumer Advisory Guide

7 Take action against Abusive Lenders higher than the value of the home? 7. Did you incur any unexpected costs at settlement that were not explained or disclosed to you prior to the settlement? 8. After settlement, were you surprised to find that the monthly payments on your mortgage loan were higher than you anticipated based on the initial disclosures? 9. If you have a balloon loan (one in which after a series of low payments the entire loan balance is due in a large lump sum),will you need to obtain another loan to finance that final lump-sum amount? 10. Were you required to buy credit insurance, insurance that will repay the debt if you die or become disabled? (Note: Credit insurance is optional and will not affect your loan decision if you decline to buy it. It can, however, add considerable cost to the loan transaction. You should decide whether you are going to purchase credit insurance carefully). Report Abusive Lenders If you have been a victim of predatory lending abuse, let others know! Your complaint could save others from being victims, too. Call your local office of consumer affairs or your state Attorney-General s office they re listed in the Government section of the phone book. Report your experience as they watch out for predatory lending scams and frauds; a good start would be to: Call ASIC toll-free , Or go to click on how to complain to file a complaint online. 07/01/13 La Trobe Financial Services Pty Limited Australian Credit Licence: La Trobe Financial Asset Management Limited Australian Credit Licence:

8 This booklet has been compiled by La Trobe Financial to help protect Home Loan consumers from Predatory Mortgage Providers. Contact us for more details