What are Predatory Loans?

Predatory lending is when a lender uses deceptive, unfair and downright abusive tactics when making loans. Various unethical lenders in the consumer and mortgage lending industries cheat borrowers who aren't that knowledgeable about good lending practices. They take advantage of borrowers by targeting those who are so desperate to get a loan that they'll agree to almost anything, no matter how undesirable. Those with poor credit are good targets for predatory loans, as are women, minorities and the elderly.

However, anyone can fall victim to a predatory loan. A lot of experts consider payday loans as predatory loans. Typically, these very short term loans are offered to everyone, regardless of credit status. These loans are very easy to get, but are given at absurdly high interest rates. Those desperate enough to borrow from a payday loan outlet will most likely end up paying more than 100% interest over the loan's term. With interest rates so high, almost all payday loan borrowers run into trouble with repayments.

Not all predatory loans are short-term. Predatory lending practices are very common among dishonest mortgage lenders. These lenders offer loans at astronomical interest rates, requiring that borrowers agree to unfair and harmful terms. For instance, a predatory mortgage lender may add a steep prepayment penalty, or a huge balloon payment at the end of the loan's term. In a lot of cases, these terms are concealed with confusing technical language, making it hard for the average borrower to understand just what they're agreeing to.

Another good example of predatory lending is a consumer loan that's backed by collateral. These types of loans usually come with high interest, and require that the borrower secure the loan with their home or their car. If the borrower fails to repay the loan, the lender will take their property and sell it. If the lender can sell the collateral for more than the loan amount, they make a profit, adding insult to injury.

To keep from becoming a victim of predatory lending practices, stay away from lenders that guarantee approval. Be aware of loan offers that come via telemarketing, or a door-to-door salesperson. Before signing with a loan company, research them carefully to determine whether it's ever been accused of predatory lending practices. Above all, please read your loan documents carefully before you sign them, and make sure you've filled them out properly, and it may also be a good idea to consult with a lawyer.