Unstated Interest Paid
Candlefocus EditorUnstated interest can come in a variety of forms. It could be an additional charge for setting up the loan or other administrative costs, a “hold back” on the payments that must be made to the lender, or a “penalty” for late payments. It is important to note that each type of undisclosed interest may vary from one lender to the next.
The concept of unstated interest dates back to the beginnings of the lending industry. In the past, most lenders charged interest on their loans that was higher than the rate stated in the mortgage documents. This allowed them to make a greater profit on the loan and was often considered unethical. Unstated interest laws were created in response to this practice in order to protect borrowers from exploitation.
Today, many states have laws that require lenders to provide borrowers with clear disclosure of all fees and interest charges that are associated with a loan. These include not just the stated interest rate, but also any additional costs such as late fees, document preparation fees and other administrative or miscellaneous charges.
It is important for borrowers to be aware of all of the costs associated with any loan, including unstated interest. Even if the additional charges are not listed on the loan documents, borrowers should ask the lender about them before signing a loan agreement. Knowing all of the associated costs of a loan can help ensure that borrowers are not taken advantage of. Negotiating with lenders can also help to reduce the amount of unstated interest that must be paid.