Key Considerations for Military Lenders
What You Should Look for When Borrowing Money
June 26, 2014 by Mark Dye
We recently partnered with the National Foundation for Credit Counseling (NFCC) and Harris Poll to conduct a financial survey of military members. The survey revealed that some military families had to go outside of a traditional lender to obtain the money they needed. This blog provides a few key considerations to keep in mind when choosing any lender.
When it comes to borrowing money, military families have several different options from which to choose. But there are some key differences between lenders that every military family should consider before taking out their next loan. Keep in mind that every borrower is different, so each will need to find the lender that best fits his or her unique needs.
- Checks credit report and/or debt-to-income ratio—These are important, as the lender is gauging your ability to repay the debt. They do so not only to protect their bottom line, but to also ensure that you don’t take on more debt than you can handle.
- Assists those with credit scores of 660 and below—Some find that military life negatively impacts their credit scores, and are unable to access organizations that only loan to those with prime credit (loosely defined as those with credit scores of 720 and above).
- Follows the 36% Military APR cap—Payday, car title, and refund anticipation loans are limited by law to a 36% APR cap for service members and their dependents, but other types of loans are not. (Note that some lenders, such as Pioneer Services, voluntarily cap their APR at 36%).
- Reports positive payment history—This is essential because credit scores are based upon paying debts in full and on time. Some lenders will only report missed or late payments, meaning you won’t get the rewards of a good payment history.
- Mandatory arbitration clause—Some lenders require you to agree to arbitration if you try taking them to court. And often, the lender gets to choose the arbitrator, meaning you have an uphill battle, so keep this in mind.
- Pre-payment penalties—You shouldn’t have to pay more for paying your bill early; you should be rewarded with a higher credit score and less debt.
- Loan satisfaction guarantee—A few lenders offer these, but many do not. Having a guarantee (and the ability to return the loan with no questions asked or compare rates with other lenders) is a great way to make sure you are getting what’s best for you.
- Federal oversight—This provides an additional level of protection, security, and comfort.
- Free financial education—A lender should be willing to help you better understand your finances. Doing so can give you the information you need to make smart financial decisions.
- Allotment required—You should be given multiple options and opportunities to pay your bill the way you want, not be forced into paying the way the lender wants you to.
- Outlines your rights—Not just your legal rights, such as an APR limit, but what rights the company offers you. Do they have a code of conduct or customer bill of rights? Do they outline what you should expect from them in terms of service? If they’re not clear, ask!
This is not an all-inclusive list by any means, but it does cover several key differentiators borrowers should consider. Remember that there can be large differences between institutions within the same category (e.g., between different banks, or between different finance companies). So review the services and features each lender provides—that way you can make informed decisions and get the money you need without the headaches you don’t.