Mortgage brokers are ideally placed to shield credit-constrained borrowers from predatory tactics
Mortgage brokers can take steps to prevent the pitfalls that members of Indigenous groups and other marginalized sectors often encounter when borrowing, according to a recent study by Loans Canada.
Loans Canada collated the data on the Canadian online borrowing experience from March 16 to April 19, interviewing 3,480 respondents who applied for loans through digital channels. It found that generally, credit-constrained borrowers – many of whom belong to marginalized groups – tend to rely on alternative lending for their financing needs.
“Although alternative lenders offer far more flexible qualification requirements for their credit products, the cost of borrowing is often much higher than at a traditional lending institution,” Loans Canada said in its report.
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Brokers can best assist clients from these sectors by taking the following measures:
1. Keeping an eye out for loan protection insurance
“Some lenders may try to convince an applicant that it is a mandatory requirement when typically it is not,” Loans Canada said. “Adding loan insurance will make monthly payments more expensive and the loan less affordable overall.”
2. Making sure that the would-be borrower understands the fine print and the fees
“By law, lenders are required to disclose the terms of a loan, including any fees. The extra time you take to review these small details will save you future headaches from lenders who may charge fees that are different from what is on the contract,” Loans Canada said.
3. Not rushing the transaction
Brokers should shield the borrower from any lender-side pressure to complete an application ASAP, Loans Canada said.
“It is important for all consumers, regardless of where they are from or who they are, to receive adequate time to make an informed decision. Avoid borrowing from lenders who use pressure tactics,” it said
4. Guarding against unnecessary products or services
“One particular example that consumers should beware of is a credit building service,” Loans Canada said. “Oftentimes these are offered on an ‘opt-out’ basis only and consumers are unaware they are signing up for them.”
5. Ensuring that all consumer-side documents are complete
This is crucial, as incomplete forms and missing documents tend to be primary reasons that an application gets rejected, Loans Canada said.
