The Four Warning Signs of Irresponsible Lending (And the Story That Shows the Human Cost of the Problem)
Published 3:13 am 11 Feb 2020
You may be a victim of irresponsible lending without even knowing it. In this article, DG Institute founder Dominique Grubisa explains how to identify the warning signs that might indicate that you have been granted unfair loans.
Australia has a huge lending problem.
It’s not that people can’t get the loans that they’re looking for. It’s that the banks’ irresponsible lending over the last few years has made getting a loan so much harder.
Just what is irresponsible lending? Dominique Grubisa reveals an extraordinary case of it in action:
“One of the worst cases that I’ve ever seen was with a 99-year-old man. On his loan application form, it said he was working full time as a cleaner and earning $200,000 a year. [The bank] lent him half a million dollars.”
Even a moment’s thought should tell you that it’s impossible for a man of that age to work as a cleaner. And unfortunately, most cleaners also don’t earn anywhere near that type of salary.
But the bank accepted the loan, which put this unfortunate man on the hook.
His isn’t the only case. There are thousands of irresponsible lending cases out there, including that of John and Barbara.
John and Barbara’s Financial Dispute with a Lender
It all started with John’s desire to buy a retirement home. As he came to the end of his working life, John wanted to buy a new place to live so he could enjoy his golden years.
So, he booked an appointment with a mortgage broker to ask if it was possible to achieve what he wanted.
The broker said “yes” and got to work.
They came back to tell him that he needed to have his wife, Barbara, on the title. That way, they’d both benefit from having the property.
John assumed he’d just gotten some good advice and said yes to the loan. He even accepted paying a 20% deposit to secure it.
Unfortunately, the bank’s request was the first warning sign that he missed. Them asking for a large deposit indicated that they didn’t think he could afford the loan. But by bringing Barbara on board, they could essentially fudge the numbers to “prove” serviceability.
The next warning sign came when the lender asked him to sign on the dotted line on the day that he settled on the property. Everything was so rushed that John never got the chance to sit down and think about what he was signing.
After three months, he realised that he couldn’t afford the loan. Even if he was away from the property and had a tenant, the repayments would outweigh anything that the property earned.
Discovering Dominique Grubisa
What John didn’t realise at the time was that he’d just become a victim of irresponsible mortgage lending. Now, he found himself in a difficult financial position that threatened his entire retirement.
John started searching for a way to get an irresponsible lending refund. That’s when he discovered Dominique Grubisa and attended one of her seminars.
John chose to work with us at DG Institute and we quickly discovered that their loan application wasn’t completed correctly. The loan should never have gotten approved.
Our team worked with John to enter negotiations with the lender. Unfortunately, the lender refused to budge. Instead, they tried to push John towards a costly financial dispute resolution court case.
That simply wasn’t acceptable so the team kept working. Finally, we helped John reach a settlement with the lender to get out of the loan and relieve himself of the debt.
A huge weight lifted off of John’s shoulders and he and Barbara felt free to pursue their dreams again. But they could have avoided all of these issues if they’d noticed the warning signs of an irresponsible lender.
You don’t want to make the same mistakes that they did. That’s why you need to look out for the following when applying for a loan.
Warning Sign #1 – They Rush You To Sign the Paperwork
Loan documents are complex things that often contain legal terminology and small print. You need to have adequate time to read through all of the conditions before accepting the loan.
That’s something that John’s lender failed to provide him with. Instead, they had him sign the loan documents on his settlement day. This created undue pressure, as a decision not to sign would have delayed the settlement.
Don’t allow a lender to push you into signing anything before you feel ready. And if they persist, it’s best to find a different lender who offers the time that you need.
Warning Sign #2 – They Offer Workarounds
A good lender will tell you straight if they don’t believe that you can afford the loan. It’s never the most pleasant news to hear. However, they’re doing it to protect your interests as well as their own.
Irresponsible lenders will try to devise workarounds, such as adding someone to the mortgage. This can create the illusion of higher serviceability. However, if you’re still the only person who’s paying for the mortgage, that illusion soon disappears.
You may find that you can’t afford the mortgage, as John did.
Research any suggestion that a lender or broker makes. You may discover that the short-term fix they offer won’t serve you in the long run.
Warning Sign #3 – A Massively Inflated Interest Rate
Every lender uses the risk that you present as a borrower to determine your interest rate. However, responsible lenders have a cut-off point. If you go past that point, they deem you too risky and won’t allow you to borrow.
That’s not the case with irresponsible lending. For example, less scrupulous lenders may just raise the interest rate to an obscene figure. They’ll tell you that this is because of the risk that you present. However, they won’t tell you that they think you’ll likely default on the loan.
The high rate could even lead to you spiralling into debt, which almost makes this a self-fulfilling prophecy.
To avoid this issue, research the average rates that lenders offer for your type of loan. If the rate offered is a lot higher than the researched rate, do not borrow the money.
Warning Sign #4 – Asset-Focused Rather Than Income-Focused
Again, many lenders will ask you to place some type of asset up as security on your loan. However, that asset should not be the basis upon which they accept your loan application.
The lender still has to check that your current income is substantial enough to cover the loan. That means they have to take an income-focused approach.
In some cases of irresponsible lending, the lender may offer to refinance solely based on the equity you have in an asset. That means they’re not looking at whether you can actually afford the loan.
Avoid the Curse of Irresponsible Lending
By looking out for these warning signs, you can avoid becoming a victim of irresponsible lending.
But what if you’ve already accepted a loan that you can’t repay. What can you do to reach a resolution that doesn’t hurt you or your family?
That’s where DG Institute comes in. We’ve worked on many irresponsible lending complaints and can help you to negotiate with your lender. And often, we’ll help you to reach a settlement without dealing with expensive legal fees.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.