In a perfect world, all of the lenders out there would actually be interested in helping people with their lending solutions. While many are more than happy to do so, some lenders seem to exist solely to prey on others that may not be so fortunate as to have options for where to find money when they need it most. Predatory lending was spurned by the desperation of many consumers who find themselves short on cash, and although it ran rampant for some time, it has been reigned in and now is much more carefully watched.
Predatory lending refers to any lending practices that are unfair, unjust, or abusive in some way to the borrower. These include loans that have higher fees and interest rates, funds that are only offered under certain circumstances, or loans that cost more because someone has less-than-perfect credit.
It might seem like these companies would be easy to avoid, but they know how to prey on the right people to get results. They often look to those who don’t have much knowledge or experience when it comes to credit as a means to get the results that they desire. There are some definite things that you can look for.
How to Spot a Predatory Lender
- When a lender offers you a loan or financial product that seems too good to be true, it could be a sign of predatory lending. For example, if you’ve got a poor credit score, you’re not generally going to find someone to give you a low-interest mortgage.
- The details of the loan, including the APR, aren’t readily disclosed to you when you take on a loan. A predatory lender will often try to get you to agree to the terms of a loan without actually telling you what they are.
- It’s “too easy” to get approved or get the financial product that you need. Even though it might seem like it’s easy to get approved, you will want to watch out for fees, high rates and hidden charges, and other loans that are all trying to take advantage of your situation or not asking enough questions to fully comprehend your financial situation.
- If a lender doesn’t ask about your existing income and debt situation, or if they try to get you to take a bigger loan than what you need, it could be a sign of predatory lending.
- Some lenders may also have huge up-front fees or payments, and encourage you to borrow again or extend the loan so that you have longer to pay, thus trapping you in a loan repayment cycle.
- If a loan or financial product doesn’t allow you to build credit by reporting your status and payments to the credit bureaus, it could be a sign that the lender isn’t on the up and up. They should be reporting your payments to the credit agencies and helping you build your credit back up without any additional strings attached.
- If there are strings or they aren’t helping your credit, it could be a red flag.
The Bottom Line
There are plenty of different warning signs and things that you’ll want to look for when you are trying to weed out predatory lenders. Some people wonder what constitutes unfair lending, but there are several different things that you can look for.
In short, is predatory mortgage lending legal? No, absolutely not. However, it’s not always as cut-and-dry when you’re applying for loans. There is not a set interest rate or “type” to watch for—you just have to make sure that you’re getting a fair loan and fair terms from a company that you can trust. Anything less is just as good as a loan shark and isn’t worth your time.