If the offering of a loan is blatantly misleading and not in compliance with the borrowers' needs, it is predatory. When a lender is not applying their fiduciary duty towards the client and is looking to take advantage of that client, it is also predatory. Bad loans come in many varieties and often are not visible to novice and uninformed borrowers. It often traps them into debt they can never climb out of because they could not afford to carry it in the first place. Predatory loans are not new to the lending industry but found their heyday in the years that lead up to the housing crash in 2008. This practice not only helped create a meltdown in the housing market but in the U.S. economy at large. We are still feeling the impact. The majority of borrowers take loans out for big purchases like homes and cars but it doesn’t end there. People who can’t pay their bills sometimes have no choice but to reach out for things like payday loans. In the state of Nevada where I live, there are no usury laws, which means the sky is the limit on the interest of these loans. They have to be collateralized by something of value, like a future paycheck, a car, or a piece of jewelry. The interest keeps building up and can go up to five hundred percent or even a thousand percent above the original borrowed amount. People lose their cars and other valuable items to payday loans every day. It is best to educate yourself against falling prey to bad loans and predatory lenders. Those who land in the lower-income bracket, the elderly, and people of color are all low-hanging fruit and visible targets for abusive loans. If you feel that you may become a victim, get help. There are simple things you can do, like improving your credit score, either on your own or with the help of a reputable credit counseling company. Try to avoid borrowing on anything until you raise your score to a minimum of the mid-six-hundreds because if you try to borrow with a lower score you will be placed in a subprime rate that can exceed twenty-five percent, even more. Do whatever you can to mitigate the risk of becoming a victim to lenders who are looking to set you up for failure in an effort to benefit themselves. Listen, look for the red flags and warning signs. Decline any loan that doesn’t feel right from the beginning no matter what you are told. Make the lender disclose all terms and fees upfront so there is no uncertainty. Don’t listen to lines like, (Don’t worry about the interest rate right now, you can improve your credit and refinance in a year.) Quite often you can’t refinance a loan in a year, particularly on a home purchase. You either have to wait for a period of time to refinance or pay high penalties when you try and do it. These are some of the things that you need to look for:
Is the interest rate capped, or will it change during the course of the loan?
Is the term capped, or can it be extended at any time?
Are there prepayment penalties?
What are all the fees I may incur, including ones that may fall outside the loan such as account fees?
Are there any changes to the loan that you can make that I need to know about?
Be careful. If you have any questions, please contact us.
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