How to Find a Predatory Lender
Most people are familiar with the concept of predatory loans, a lending practice that imposes unfair or deceptive terms on borrowers, often in the form of payday loans or title loans with blatant interest rates. But what is the difference between a predatory loan and a lawful loan with a high interest rate? Here’s how you can tell the difference.
The offer seems too good to be true.
Be careful if a potential lender is not interested in checking your credit rating, offers quick approval for a loan amount that is much higher than other proposals, or usually promises generous terms by asking a few questions. If the lender seems uninterested in whether you can ever pay off the loan, that means they probably don’t want you to ever pay off the loan – they want to keep charging you (probably above average) interest like as long as possible. …
Three-digit interest rates
A sure sign of a predatory lender is that it will offer three-digit interest rates on short-term loans, even if people with the worst credit ratings have alternatives that will provide them with cash at an annual rate close to 30% (which is still quite high) … Predatory lenders are also reluctant to tell you the total cost of the loan with interest, usually hiding it somewhere in small print or keeping it quiet until you sign the papers.
Inflated commissions and fines
Legitimate loans offer a clear path to repayment without surprises. On the other hand, predatory lenders want to keep you hooked forever, and one way to do this is through excessive late fees, which are a percentage of the total loan amount, rather than a flat fee. And even if you are a responsible borrower and pay the loan early, you can be on the hook for the pre-payment of fines, which can also be calculated as a percentage of your loan. Excessive garbage fees are also common.
The lender does not report your payments to the credit bureaus
Proper lenders rely on credit ratings to determine whether to loan you, which is why they report your payments (or defaults) to the three main credit bureaus that calculate your credit rating – Experian, Equifax and TransUnion. Naturally, if unscrupulous creditors are more interested in keeping you in debt – and in the background – they are unlikely to do so. Make sure any potential lender will report your payments before you sign up for a loan.
You’ve never heard of a lender before
If you don’t already trust a large bank or credit union, research your potential lender. Any complaints from other consumers can be detected with a simple Google search, as well as checking the Consumer Financial Protection Bureau’s complaints database .
The lender wants to have direct access to your bank account
While many lenders request access to your bank account to process automatic payments, providing such information is optional. According to Credit Karma , a predatory lender can treat your account like an ATM, making repeated requests for payment, even if you increase your bank overdraft fee if your account is low on funds. Also note that you can cancel automatic payments at any time.
If you are struggling with debt, consider your options before restructuring your mortgage or taking on a bad personal or payday loan.