Loan Smarts

Thinking about taking out a loan to pay off credit cards, make home improvements or go on vacation? You are not alone. Many lenders suggest that consumers borrow against the value of their homes to get cash at relatively low interest rates. This may be wise for some, but remember, borrowing against your home--with a second mortgage, home equity loan or by refinancing a current loan--uses that property as collateral. You should understand all aspects of the loan before signing anything; if not, you may be putting your home in jeopardy.

Shopping for a loan can be a confusing experience even when dealing with a lender you know and trust. While most lenders are legitimate and honest, there are some unscrupulous ones that will try to take advantage of consumers. Here are a few points that every applicant should consider before agreeing to any kind of loan:

• Compare types of loans, the rates, terms and conditions. How much you can afford in monthly payments?
• Shop around. Find the lender who can give you what you want.
• Understand what your responsibilities will be. Make sure you can meet them.
• Ask if your application fees will be returned if you don't qualify for or decline the loan.
• Check to see if there are any penalties for paying off the loan early.
• Read all documents carefully before signing anything; get copies before you leave the lender.
• Ask questions about any term or condition you do not understand.
• Keep records of all payments.
• Talk to your lender immediately should you have problems making payments on time. They may be willing to work out a temporary payment schedule.

Finally, paying off high credit card debt by taking out a second mortgage or home equity loan may not be the best option for you. Credit cards are considered unsecured debt, meaning there is no property held as collateral. On the other hand, home equity loans and second mortgages are secured debt-- property is used as collateral in the event you cannot pay. By converting unsecured debt into secured debt, you may be putting your home in jeopardy should you default on the payments. If you are having credit problems, contact a reputable non-profit credit counseling service for assistance.

• National Foundation for Credit Counseling www.NFCC.org
• Consumer Credit Counseling of Delaware Valley www.cccsdv.org
• Consumer Credit Counseling of Western Pennsylvania www.cccspa.org

If you think you have been taken advantage of or you have questions concerning a lender, call the Bureau of Consumer Protection Hotline at 1-800-441-2555 or visit the Attorney General's website at www.attorneygeneral.gov.