Predatory Lending
Predatory lending is the unethical, deliberately misleading and unscrupulous ethics used by many lending companies when an individual applies for a loan. There is no legal description regarding this type of loan in the United States. The FCC classifies any inequitable or offensive loan conditions as predatory lending. This term describes any lender that convinces an individual to agree to a loan with an unjustifiable profit for the lender. These lenders are shady and exploit the ignorance of the buyer with unethical financial conditions. Examples of predatory lenders include LendUp, OppLoans and Elevate.
The Targets
The targets of predatory lenders are generally the poor, minorities, the semi-educated and the elderly. They also target people requiring fast money for a crises such as an auto installment or a home repair. They focus on people who have been laid off or have credit issues. Even though these individuals have home equity they are unable to acquire a mortgage on their homes. The methods predatory lenders use may not be criminal but they generally leave their victims in serious jeopardy.
Predatory Lending Practices
Most predatory loans will eventually leave their borrowers in ruin. These loans are a virtual minefield and unable to be paid back without major issues. A payday loan offers a small loan at an extremely high interest rate on a short term basis. A postdated check is written by the borrower for the loan in addition to the charges. This is prime example of predatory lending because the individual usually pays back double what they borrowed due to exceptionally high interest rates.
The Hidden Fees
Predatory lenders add hidden charges and fees to the cost of the loan. The loan origination charges are often hidden in the fine print. The borrower is unaware of these charges until it is too late and pays a much higher fee than normal.
Loan Flipping
Predatory lenders will persuade individuals to refinance current loans with a much larger amount. This loan has a higher interest rate than what the individual is currently paying and includes numerous fees for processing.
Deceptive Disclosures
This is when the conditions, risks and costs of a loan are not accurately presented by the payday lenders. Predatory lenders often insert clauses enabling them to change the loan terms after the borrower has already signed the contract.
Risk Based Loans
A loan designed to take advantage of the credit score of an individual with the purpose of charging extremely high interest is a predatory loan. The borrower is often unable to make the payment. This loan charges higher rates for lower credit scores.
Lending Based on Assets
This loan is made on an individuals equity in their home despite their ability to afford the payments. This type of loan can cause the borrower to lose their home.
Protection from Predatory Lenders
Predatory lending is immoral but not criminal or illegal according to the law. There are ways people can prevent themselves from becoming a victim. The first is to become educated regarding the way interest rates for loans work. This can be accomplished with online loan calculators and tutorials. Prior to agreeing to a loan all borrowers should check out the company. This can be done by reading their reviews, checking their APR, reading their terms, conditions and disclaimers or checking their status with the Better Business Bureau. Many states have laws to prevent the residents from becoming victims to predatory payday and real estate loans. Sometimes the state government can provide a victim with a legal way out. Prior to accepting a loan borrowers should speak with previous clients to ensure they were not treated inappropriately.
Extremely juicy deals and incredibly low rates of interest should be treated with suspicion. Most of the time the person will not qualify for these astronomically low rates. The rate they are given generally increases significantly as time passes. Sometime a signature traps a person into a balloon loan. This type of loan has a major payment at the end. Most borrowers are not able to make this payment and can lose their home.
Never sign any documentation this is either incomplete or blank. The borrower does not know what details will be filled in later. All the information must be complete prior to the documents being signed. A blank document will return with terms favorable to the lender not the borrower. Do not lie on any loan application regardless if the lender says it is something everyone does or it will be fine. This document can cause serious issues in the future. Chances are good legal recourse will not be possible because the borrower committed perjury knowingly. This can easily result in legal trouble and a loss of the money. Always use common sense when applying for a loan.