Predatory Lending

If you’re in the market for a loan, you are probably aware that some products are better than others. However, certain loans have such poor terms, fees, and interest rates that they are considered predatory. You can avoid predatory lending by understanding how they work, and taking steps to qualify for a higher-quality product.

Predatory Mortgage Lending

For mortgage loans, predatory lending is the practice of a lender or broker pushing unreasonably expensive loans or refinancing deals. For example, they may:

  • Talk you into a loan with an interest rate higher than you qualify for based on your credit score.
  • Persuade you to borrow more than you can afford to repay.
  • Falsify documents or ask you to lie on the application.
  • Lie or neglect to tell you about the terms of the contract.
  • Not give you enough time to review the contract.

Other Types of Predatory Lending

There are other types of predatory lending and they are promoted to people with no or damaged credit who need money for emergencies. These loans come with exceptionally high interest rates and can feature terms that make repayment difficult:

Payday Loans

A payday lender allows you to borrow against your future income. You give them a postdated check, which is deposited if you do not pay back the loan. The APR (interest expressed as an annual percent rate) is usually over 200 percent and can go much higher if you refinance the loan instead of paying it off as soon as it comes due.

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