Discuss that consumers who use credit should be aware of laws that are in place

Question

Discuss that consumers who use credit should be aware of laws that are in place to protect them and that these include requirements to provide full disclosure of credit terms such as APR and fees, as well as protection against discrimination and abusive marketing or collection practices. Explain why it is important that consumers have full information about loans. Explain the information on a credit disclosure statement. ***Explain that consumers are entitled to a free copy of their credit report annually so that they can verify that no errors were made that might increase their cost of credit . Explain why it is important to check the accuracy of the information recorded on a credit report and know what steps to take to correct errors on credit reports.

Explain why do people often apply for a mortgage to purchase a home and identify a mortgage is a type of loan that is secured by real estate property as collateral.

Explanation / Answer

Consumers often go for credits that are offered through credit cards or loans. At the same time, most of the consumers don’t possess awareness regarding laws related to protect them from unfair practices followed by lending institutions. Credits offered are non - collateral loans that are offered by the lending institutions. It comes with high interest rate, penalties and complex credit cycle. Many hidden fees are also included. Thus, a consumer must acknowledge;

1.    Terms of credit such as interest rate

2.    Maximum borrowing limit

3.    Credit cycle

4.    Late payment fees

5.    Hidden charges if less transactions take place

Sometimes, consumers are unable to repay the debt and in such circumstance, lenders try to assault borrowers and / or harass them as a part of the collection process. To prevent this, laws are in place to protect consumers and they should know it. Lending of non-collateral credit is upon the sole discretion of lenders. But, they cannot practice any method to collect the debt issued. Here, laws stop them. Thus, consumers should know their rights. Though, non-payment of debt will give them negative rating.

Loans are the medium to finance those purchases or investments that cannot be paid at once by the buyers or borrowers. The loans come with different terms such as fixed and floating interest rate, compounding frequency and duration of the loan. Financial institutions want to go for long term loans so that they can collect more interest. But, consumers should go for short term loans so that they should only pay a lower amount of interest rate. Thus, consumers need to make a tradeoff. Also, a comparative analysis of loans offered by different organizations also help to get the best deals.

A credit disclosure statement discloses the details of credit to be issued to the borrower with complete details. It offers the close look of net credit still owed by the borrower. It also helps in identifying the credit limit left for the borrower on the basis of present income.

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