How to Avoid Predatory Lending

Tips-to-Avoid-Predatory-Lending
Predatory lending has long been an issue for financially vulnerable people. There is no exact definition of a predatory lender, but be on the lookout for the signs.

For the most part, these lenders either try to overcharge people for loans, or worse, talk them into riskier loans that come with higher interest rates. The primary goal of predatory lenders is to make as much money as possible on their loans, regardless of whether the loan actually makes sense financially for the borrower.

Targets of Predatory Lenders

Predatory lenders often take advantage of people who may be vulnerable to high-pressure sales tactics.

There are three segments of the population that are especially targeted by predatory lenders:

  • Older borrowers,
  • Minority consumers who tend not to use traditional banking services,
  • Low-income families with imperfect credit.

Nearly all predatory lending occurs in the subprime market where loans are sold to people with less than ideal credit histories, who are under financial stress as well.

Questions & Doubts: Your Protection Mechanisms

The most important thing that you can do as a consumer and potential borrower to guard against predatory lending is to find a lender that you can trust, and do plenty of research beforehand. Responsible lending plays an important role in helping consumers meet their financial needs and goals.

You can completely protect yourself and your assets by thoroughly educating yourself about predatory lending practices. This includes watching for warning signs of unscrupulous lenders, asking the right questions and developing a long-term relationship with a responsible lender who understands your financial needs and has reputable lending practices.

Here are some very important questions that you can ask a lender before borrowing any sum of money:

  • What is my credit score?
  • Is there an application fee?
  • Is the loan’s interest rate fixed or adjustable?
  • What is the best interest rate today and do I qualify?
  • What are the total loan fees?
  • What is the total monthly payment including property taxes and insurance?
  • Are there prepayment penalties?

Predatory lending practices vary widely, but more often than not, loan officers make promises to borrowers that are simply too good to be true. If your loan officer promised you a low-interest and low-fee loan while you’re overwhelmed with a high-interest, high-fee loan, you’ve been the victim of a predatory lending scam. So what do you do now?

Enact Your Right of Rescission

You have more rights than you think when it comes to being the victim of predatory lending. The right of rescission means you have the right to turn down a loan after signing the paperwork.

According to the Truth in Lending Act (TILA), the right of rescission lasts three days on the majority of loans. In most cases, predatory lenders often intentionally fail to adhere to the disclosure requirements outlined in the TILA.

If your borrower did not provide you with a Notice of Rescission, or the notice contained any errors, it isn’t legally binding. You can legally walk away from your obligation to your lender, in addition to collecting damages in court.

Refinance Secured Loans

If you’re paying more than you should for a predatory loan, you may save money and avoid defaulting by refinancing the loan with a much more reputable company. When you refinance the loan with a new lender, they will pay off your old, predatory loan and you can begin making payments under your new loan agreement that will have far more reasonable rates. Make sure to conduct ample research before refinancing, so you don’t run into the same problem!

Don’t Keep it for Yourself

If you have been a victim of lending abuse, let the competent bodies know! Call your local office of consumer affairs or your state Attorney General’s office and file a complaint. Also, make sure to report your experience to the Federal Trade Commission, it watches out for predatory lending scams and frauds.