Read the Fine Print Before Signing Any Loan – You Might be Surprised at What's in There

With the whole mortgage meltdown and ensuing credit crisis, there is plenty of blame to go around. Even with shady lenders, complex loans, and loose lending requirements, most of this could have been avoided if people took the time to read, and more importantly, understand what they were signing. Most people simply don’t want to spend the time to sit there and read all of the fine print and those who do actually read it may not fully understand everything.

Don’t Be Embarrassed if You Don’t Understand

When someone explains something technical or difficult to grasp and then asks, “Do you understand?”, the response is typically “yes.” Either it is because you want to get through the process quickly, you don’t think it is very important, or you don’t want to feel embarrassed that you don’t understand a concept. This could end up being a costly mistake. If you don’t understand something or if you see conflicting information, it is in your best interest to stop and ask questions. It’s much easier to take a moment before signing to get clarification than to learn the hard way at some point in the future.

Information Included in the Fine Print

Most people are concerned with a few key areas of a loan such interest rate and length of the loan, but it is within the fine print of the promissory note or security agreement that contains the information that can really cost you money. The most common information included throughout the text will include:

  • The promise you make to pay the lender a certain amount of money plus the agreed to interest rate.
  • Whether the interest rate is fixed or variable — if variable, when does the rate change and by how much.
  • The payment schedule.
  • Charges for late payments.
  • Any applicable grace period.
  • If the loan can be paid off early and if any penalties are incurred for doing so.
  • Whether or not security or collateral is required.
  • Whether or not the loan can be extended.
  • What happens if you default.
  • What happens if you pay with a bad check.
  • Can the lender take money from other accounts you may have with them to repay the loan.
  • Who pays legal fees and collection costs.

Don’t Sign Anything Until You Completely Understand

While it pays to make sure you get a good interest rate with good terms, it is equally important to make sure you understand everything about the loan even if you don’t think it will ever apply to you. You have nobody to blame but yourself if you make a late payment and find out there is a $40 late fee. It would come as no surprise if you took the time to understand what you agreed to. In the event of a problem with your account, ignorance is not a defense. It may seem like a waste of time to spend an extra ten or fifteen minutes to read multiple pages of small text, but it could end up saving you money or problems somewhere down the line.

And finally, don’t feel pressured by the person sitting across the table who’s urging you to sign. Not everyone is out there trying to trick you into a shady loan, but you shouldn’t feel rushed if they are just trying to quickly get you through the process. They can wait, and you should take as much time as you need. If they brush off certain sections saying it isn’t important, just explain that you want to take a moment to look it over. A couple extra minutes will ensure that you aren’t missing some key terms on the loan and help you completely understand what to expect, and what the consequences will be if something goes wrong.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

14 comments
Brian
Brian

Typical scumbag banks, they love to cram all the particulars down there.

AMERICA'S UNEMPLOYED
AMERICA'S UNEMPLOYED

Yes Yes read the fine print. This is a very valuable lesson that you need to learn before it's too late. I have been through this many times.

Adrian
Adrian

Wow, I see and hear of this every day. Please people always check your documentation. Its the fine print that's most important. Jeremy is right on the money here when he said "don’t feel pressured by the person sitting across the table", If you don't understand exactly what you are signing the DON'T sign.

Ryan
Ryan

Great article Jeremy, I have lost count of the number of times I have signed agreements without really looking at what I'll be getting into. This has particularly been the case with mis-sold insurance! All the best.

jeremy
jeremy

Hey jeremy,

Is this article a response to your grandma signing a will that she didn't fully understand and in doing so you missed out on your cut of the big time so now you have to do little posts about it? Because reading the fine print couldnt possibly be an explanation for the financial crisis, how and why the economy is in the state it is???? REALLY

FAIL my friend FAIL

The Passive Dad
The Passive Dad

When my wife and I signed our loan docs, our realtor provided a copy of all docs that we would be signing prior to meeting with the title company. It gave us a great opportunity to give feedback and ask questions.

Junior
Junior

Know what would have been great? If this sort of due care would have been promoted back in 2004 when housing started to go sour. But no, Greenspan said Viva la Bubble and here we are.

Great article and hopefully more people pay attention now that the tanking economy has most of us by the balls.

Aplus Financials
Aplus Financials

Sometimes you feel pressured to just skim over the documents. This article is a great reminder to take your time and go through it carefully! Good Post!

Savings account
Savings account

I strongly agree with you. I fell into this trap years ago and got reaped over £2000 in charges. I advice everyone to read and understand all T & S regarding any kind of loans/credit cards. Thanks

jim
jim

Too much of this happened two years ago, which is why we're in the headache we are now! Argh...

Miranda
Miranda

Thanks for this reminder! One of the sticklers, in my opinion, is the prepayment penalty. You definitely DO NOT want to sign papers with one of those. It can also help to have someone else go over the papers before you sign -- just to get another opinion.

anon
anon

Great advice.

We read our mortgage papers at the signing. The real estate agent and the bank's lawyer were rather unhappy about this. They kept pushing us to go faster. Be prepared for that.

Unless you live in a state with some worker protection laws, you might not bother to read your employment contracts (as an at-will employee). I tried to negotiate away some of the more stupid things on several occasions without success. Come on! There's no way I'm not going to be able to work for one of the competitors after I get laid off! Where else would I go???

In my state it's a perfectly legal contract, or so I'm told.

Anthony
Anthony

This post reminds me of a time I had to sign something for a new job. The gentleman assisting me with the paperwork slide a paper across the desk and pointed to the spot where I needed to sign. As I was reviewing what I was agreeing to, the gentleman assumed I was hesitating because I didn't know where to sign and again pointed to the spot. I said, "I'm sorry, I have a nasty habit of reading things before I sign them!" The gentleman chuckled and let me finish.

The moral: Don't be like everyone else and sign before you look. You're liable to make a mistake, or let a mistake slip by, and it will cost you in the end.