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Red flags when signing loan documents
Paperwork doesn’t
match the sales pitch
The promises made to you by a salesperson are not in the papers
that you are asked to sign.
Confusing fine-print A good rule of thumb is to refuse to sign anything that you don’t understand.
Incomplete paperwork You are asked to sign a contract with blank spaces to be filled in later.
Additional insurance
and other add-on
products
Some lenders may insist on, intimidate, or imply that borrowers
must buy unnecessary items—additional insurance, unneeded
warranties, monitoring services, etc. They get incorporated into the
loan amount, and the borrower pays interest on them over the life
of the loan.
Prepayment penalties Prepayment penalties are fees lenders require a borrower to pay if the borrower pays off a loan early.
Mandatory arbitration
Language is included in the fine print of the loan terms and
conditions making it illegal for the borrower to take legal action
against the lender. The loan documents require the borrower to
submit to arbitration. Borrowers can find it difficult to find legal
representation for mandatory arbitration proceedings.
This Tool is included in the Consumer Financial Protection Bureau’s toolkit. The CFPB has prepared this material as a resource for
the public. This material is provided for educational and information purposes only. It is not a replacement for the guidance or
advice of an accountant, certified financial advisor, or otherwise qualified professional. The CFPB is not responsible for the advice or
actions of the individuals or entities from which you received the CFPB educational materials. The CFPB’s educational efforts are
limited to the materials that CFPB has prepared.
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