Predatory lending refers to unfair lending practices, when unfair or exploitative terms are offered to borrowers. This unsavory type of behavior is carried out by illegitimate lenders.
Predatory lending also applies when lenders try to convince borrowers they need a loan, and push them to take one against their prior wishes.
- Predatory lenders target the most vulnerable of consumers, such as the eldest and youngest groups of borrowers.
- Predatory lending can land you with excessive debt in the form of fees and interest.
- The Coronavirus pandemic caused a spike in predatory lending.
- There are over 23,000 regulated and trustworthy lenders across the US. If you need to borrow money, opt for one of these providers.
What Is A Predatory Lending Loan?
A predatory loan is offered by lenders with unfair, or even abusive, loan terms. These loans are in place to benefit the lender, and disregards the impact on the borrower.
When borrowers fall for these scams, they can be landed with huge amounts of debt. This is made up of what they borrow and any fees or interest applied to it. These charges are usually sky-high and cause distress to borrowers, 86% of whom struggle to pay their debt back on regular payday loans, let alone predatory ones.
Predatory lenders often use deceptive methods to convince consumers to agree to exploitative and oddly high loan terms, even when borrowers don’t necessarily need the loan, or cannot afford it.
How Do I Spot Predatory Lending?
There are many giveaways that you can look out for when trying to check whether a lender is legitimate or is a predator.
You should look out for:
- A dodgy website. For example, if their web address begins with ‘http’ rather than ‘https’ then that’s a warning sign! The ‘s’ stands for secure, and means that your information is safe with them.
- Shockingly high interest. Yes, payday loans are known for their high interest. The average across the US is 396% APR. However, 18 states, such as Illinois, have a 36% legal limit on APR. If your lender is offering you APR which exceeds your state limit, they are likely a scammer. Indeed, if APR is significantly higher than 400%, especially beyond 600%, then they could be a scammer.
- Rushed Papers. Regulated lenders must provide you with thorough and legally binding paperwork, and should offer thorough terms and conditions. If this is rushed, or looks illegitimate, you should question it and check whether they are trusted by searching for them on the OLA register.
- Many Added Fees. Many lenders add on service fees, but there should only be around one charge. If they tally up a bunch of costs you don’t know why you’re having to pay, then think about whether they’re worth your trust and custom.
Conmen and Covid
Covid paved the way for a rise in financial crime, with the most vulnerable and un-tech-savvy consumers acting as the target. Predators usually beeline for the elderly and those too young and financially inexperienced to know they are being swindled. It is important you are aware how to avoid payday loan scams.
Although both Google and Facebook have banned payday lending promotions, targeted advertising has recently appeared on both sites, with triple digit interest applied to advertised loans.
The Center for Responsible Lending argues for a 36% cap to be placed on interest rates. This limit is already in place for payday lending to military members.
You should keep your eyes peeled for phishing scams, where conmen try to secure your personal details, especially your bank or card details. Other conmen carry out ‘advance fee’ scams. Here, they offer you a loan, but under the condition that you pay them an upfront fee for doing so.