Predatory Lending
Financial Dictionary -> Loans -> Predatory LendingEven though they might not want to admit it, many lenders prey on those who may have poor credit or are older. They come offering extra money and a way to get out of debt, but they leave with thousands more dollars than was previously on the loan. If you haven't heard about this deceitful way of doing business, it's time to learn the facts about predatory lending, perhaps the worst type of lending there is.
What is Predatory Lending?
Predatory lending is, in a nutshell, a type of lending in which the lender seeks to get more money out of the borrower over the longrun. Many different lenders engage in predatory lending, which is why so many people have fallen victim to it. Predatory lenders come offering things like more money to get out of debt the borrower may have, lower mortgage payments etc. In reality, they are only trying to get you interested enough to set you up for a loan that is higher than what you already have-or what you deserve. It's for this reason that many predatory lenders target the poor, elderly and those who have poor credit.
Four Things to Do to Avoid Predatory Lenders
If you're a consumer, you might be feeling powerless knowing about predator lenders but not knowing what you can do. However, it is extremely easy to avoid predator lenders, as long as you know exactly what to do. Follow the guidelines below to know what to do.
- Beware of Someone Who Contacts You Out of the Blue. Most predator lenders initiate a loan by calling you out of the blue with an offer to "refinance" your home to get you out of debt. This is usually done after they've run a credit check on you and can see that you have some debt. During this phone call, they'll tell you all of the "benefits" of refinancing your home. If you tell them "no" right off the bat, they may continue to try to sell the loan to you. This is a good indication that they're a predator lender, as they usually don't take no for an answer.
- Look for All the Fees. If you are considering refinancing your home-and there are some legitimate refinancers out there-then you'll want to look closely at the documents before you sign them. Most people don't look at the fine print, and this is what sometimes leads them to getting into a predatory loan. Take a good look at the documents, and if you see a lot of hidden fees within them, the loan is probably a predator loan in disguise.
- Look at the Interest Rate. The key component of a predatory loan is the interest rate. That's what typically makes the predatory lender the most money, and it's a pretty obvious thing to notice about the loan. Avoid loans that have an excessively high interest rate, as these are probably suspect at best and, at worst, are predatory loans. How do you know if the interest rate is excessively high? You can get loan quotes from other companies in your area and compare them to the offer you already have.
- Research the Company. You can avoid many predatory lenders by simply researching them before signing a loan with them. Check out your local Better Business Bureau or do a simple search on the internet. If the company is at all unsavory, you'll quickly determine that by your research.