Protect yourself from discriminatory loans by following these five steps
Black? Indigenous? A woman with a low income? In poor health? A new study from Loans Canada, an online loan search and comparison platform, reveals the alternative lending application process is riddled with bias, but you probably knew that already.
Here are five tips to follow to ensure you get a fair deal when borrowing:
1. Take your time.
When surveyed, members of marginalized groups reported feeling intense pressure to get their loan application in quickly, or to accept a loan offer on the spot if approved. As with most things in life, high-pressure situations tend to lead to suboptimal results. As a borrower, it’s in your best interest to take adequate time to make an informed decision, and to read through the paperwork. If a lender is pressuring you, it’s a sign you need to tell them to back off, or simply walk away.
2. Watch out for loan protection insurance.
Loan protection insurance costs money by making monthly payments more expensive, and it is almost always optional. Pay close attention to any loan protector insurance clauses added to your loan contract. Some shady lenders may try to convince an applicant that it is mandatory when, in fact, it might not be. The choice to insure or not to insure the loan should be yours to make.
3. Avoid rejection by gathering the right documents.
Incomplete applications and missing documents are common reasons for rejection, especially in marginalized communities.
If you’re a new borrower, have a limited financial or credit history, or haven’t kept your personal paperwork organized, you might end up with insufficient information for the lender to complete the application. The irony is that to build a strong credit score and financial paper trail, you need someone to lend to you, and you need to demonstrate that you’re able to service the debt properly. It’s a chicken-and-egg problem.
Be sure to fill out your application to the best of your abilities and be prepared to submit additional documents or information should the lender ask for it. My advice is to keep all of this paperwork organized for future applications.
4. Read your contract carefully, even if it takes more time.
By law, lenders are required to disclose the terms of a loan, including any fees. Fees and special clauses are described deep in these contracts. The extra time you take to review these details will save you future headaches from lenders who may charge fees that are different from what is in the contract.
Some fees are normal, but it’s better to know about these than get blindsided by them because you didn’t take the time to read the contract.
If reading the contract is a challenge, bring in someone who can read and translate the contract for you. Knowledge is power. Take your time and ask questions.
5. Beware of lenders claiming they can fix your credit score.
Consistently paying your loans back, and servicing your credit card and line of credit balances with regular payments over a long period of time is the way to increase your credit score. Don’t believe a lender who claims they can “fix you up” with a higher score overnight. It’s not possible.
Doubly sneaky is that some lenders have “credit-repair services” included in their contracts, which you would need to specifically opt out of. But, if you’re not paying close attention to the paperwork, you may accidentally sign up for it.
If you want to monitor your credit score, you can actually do this online through one of the major banks (where you do your regular banking) or through apps including Credit Karma, Borrowell or Mogo. This can be quite motivating to track, especially if you’re working hard to improve your score.
If ever you’re in the thick of the loan application process and you catch a whiff of discrimination, be prepared to take your business elsewhere.
This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.
