Almost any American would likely agree that they could use a little bit more money than they actually have. Across all income ranges, a wide percentage of Americans are living paycheck to paycheck, barely keeping up with their own cost of living.
For many, borrowing money becomes a necessity. It might be important to borrow money from a lender in order to make ends meet, to take advantage of opportunities, or to make a necessary life purchase.
In most situations, this borrowing of the money goes by without too much trouble. In other instances, borrowers have to struggle against predatory lending practices by lenders of all sorts. If you’re about to borrow money, how can you make sure you avoid this fate yourself?
Read on and we’ll walk you through what you need to know.
What are Predatory Lending Practices?
When you borrow money, the lender usually is the one that gets to set the terms of the agreement at hand. Typically, the better application and credit score the borrower has, the more stake they have in negotiating a fair deal.
Those with less than stellar credit scores might be at the mercy of lenders with very little negotiating power to their name.
Predatory lending is when a moneylender demands unfair or potentially even abusive terms for an agreement with a borrower. Often, the intent of a lender in these situations will be to force the borrower to go deeper and deeper into debt.
The lender thus continues to grow the amount of money that they can take from the individual in question. They can make it very difficult to get out of this cycle. And they create a financial mess in a borrower’s life and they profit from it.
They do this in a few different ways. If you’re a lender, it’s important to keep an eye out for the following practices.
Predatory Lending Practices
One popular way a predatory lender lures in victims is to promise low interest rates. If you find an interest rate that is below that of the current market value, it makes sense that you might be interested in working with the lender.
However, these rates might actually prove to be too good to be true. The lender might wait until the last second to tell you that you actually aren’t qualified for the advertised loan and will push you to sign up for a higher-rate option.
By this point, you may be in more desperate need of quick cash and might be out of other options. This may be a morally repugnant move by a lender, but this kind of abusive lending does happen.
Predatory lenders are no strangers to aggressive sales tactics, after all. They’ll limit how much time you have to consider accepting a loan, forcing borrowers into quick decisions.
They’ll also often push borrowers to take more money than they need. The more a lender gives, the more they can make on interest, after all. They’ll often talk a borrower into thinking they need more than they really do so as to make a quicker profit.
Avoiding Abusive Lending
How can you avoid falling prey to abusive lending practices? It can be tricky but it will be much easier if you know what to look out for.
Be Aware of Red Flags
What sort of signs should you keep an eye out for when first speaking with a lender you’re interested in? There are a number of actions that lenders might take that should provoke some skepticism in you.
First and foremost, be wary of lenders that tell you they aren’t interested in your credit score. This might be exactly what you want (or need) to hear, but that doesn’t mean it’s actually good news for you.
A credit score is often the only way for a lender to determine the trustworthiness of the person they are lending money to. If a lender doesn’t seem to care about your credit, it might mean they actually aren’t all too worried about getting paid back.
This indicates that they may actually want you to fall behind on payments and owe them more. It’s not a good sign.
You’ll also want to avoid any sort of lender that is offering loans that have balloon payments. These loans are predatory in concept alone and never end well. It’s far too easy to get into debt accepting this kind of loan from a lender.
As we mentioned, any lender that is forcing or rushing you into a decision is one that shouldn’t be trusted. You should be allowed to take your time and think about your decision for a reasonable amount of time.
Careful & Safe Practices
There are behaviors that you can engage in that will also protect you during your time looking for a loan.
Make sure to take time to compare the terms of a loan between multiple lenders. The more you shop around and compare offers, the more you should understand what the ‘average’ loan deal should look like for you.
This will help you to notice when a certain offer seems fishy or just too good to be true. You’ll be better at noticing predatory lending.
Make sure you’re ready to do a lot of research and never sign too early. You should understand the terms of a loan completely before signing anything, regardless of what a lender might tell you.
If you find yourself in a difficult situation, reach out to reputable help like the kind found at https://consumerprotection.net/. It’s important that you take the needed steps to protect yourself.
Avoiding Predatory Lending Practices
If you’re looking to borrow money, you’re inevitably going to put yourself at risk of falling for predatory lending practices. The more you can understand the above information, the more you can avoid getting into a situation you won’t be able to find your way out of.
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