Shady Lending Practices are Thriving, Especially in the Short-Term Payday Loan Industry.

Beware of Payday Lenders Pitching Loan Products

Even though most people don’t desire to, getting into a lending situation is sometimes unavoidable. For example, most go through a bank to process a car or house loan. Most lending practices are regulated to protect the borrowers and ensure adherence from lenders. However, the truth is that predatory lending still exists in many places.

Many fall victim to these financial scams because they are in situations where they have no choice. Others aren’t educated about the matter and become prey because they cannot tell if other options are available for them. It’s worse as these predatory lenders also disguise themselves as legitimate practices. Understanding and seeing the signs will help one identify if the lender is one you should avoid.

What is Predatory Lending?

Traditionally, lending has to benefit both parties. The borrower gets access to the money they need, while the lender will get more money over time from the agreement. Predatory lending creates a situation where the lender benefits from the borrower for as long as they want. They do this by taking advantage of a borrower’s lack of education.

Predatory lending practices often target those who fall prey to a borrowing scheme. They target the poor, minorities, and the uneducated. They will also look for people in a financial bind to try and tie them into their contracts. It could be someone who encountered an emergency medical expense or needs money for home repair. The person could have also recently lost their job.

Many of their victims are people who don’t have access to traditional loans. They may have lower credit scores because of their past problems. They will get into terms where the loan stacks in their favor. They might use a borrower’s real property as collateral, ensuring they have a high chance of getting a valued asset if the deal falls through.

The sad news is that their practices may not necessarily be illegal. Some of them skirt around the boundaries of what authorities allow in lending. If you’re not careful, you could end up in a worse financial situation, getting into heavy debt and losing assets like your home.

Identifying a Shady Lender

There are common loan types associated with shady lenders. An example of this would be payday loans. They process loans fast but don’t tell you about the exorbitant interest rates that come with their loan. You’ll need to pay them by the next payday or risk getting into another risky borrowing situation.

Another example is the tax refund anticipation loans. These types of loans aren’t something you necessarily need. They offer you money in advance in anticipation of the expected payout you can get to pay off the loan. However, you’re getting into a deal where you have to pay more than you expect.

Some practices will help you notice shady lenders. Here are some signs you have to watch for and observe as you deal with these unknown organizations:

• Loan Flipping: A practice where the lender encourages the borrower to get into a much larger loan. They refinance the old loan but offer higher interest rates and more fees with the new deal.

• High prepayment penalties: The lender imposes an absurdly high penalty for paying off the loan early. It’s a sign that they want to keep you paying the loan and interest for as long as possible.

• Mandatory arbitration: A situation where the lender makes it illegal for the borrower to pursue legal action. It prevents them from using fraud or misrepresentation as grounds for getting out of a bad deal.

• Insufficient disclosure: The lender hides crucial terms of the loan or changes them after their initial offer.

• Extremely high fees: Many predatory lenders hide high expenses in the fine print. You’ll notice them once you compare rates to more reputable organizations.

Protecting Yourself

As mentioned earlier, predatory practices will try to target people whom they believe they can fool. An educated borrower is their worst nightmare. You can do some things to help ensure you’re getting a fair deal.

Education

Learn more about loans and what constitutes fair ones. You’ll find a lot of information from government agencies that help you against getting into fraud situations. Many online resources provide more information about loans, the standards, and the rules lenders need to follow.

Compare and Contrast

Before settling for a loan, compare it with others first. You may not know the rates, so you’ll have to get an idea of what the standard is before signing anything. Don’t be afraid to consult with credit counselors and financial experts, as they can evaluate your situation.

Trust Your Instincts

There is a feeling you’ll get when the offer is too good to be true. In lending, it is likely the case. Make sure to take a step back when you’re feeling uncomfortable with the terms of how they’re talking to you. They may be withholding the truth or are avoiding some of your questions.

Demand Answers

Predatory lenders will try to make it confusing for you, so you avoid asking vital questions. Demand for answers if you don’t understand anything. Make sure you know the numbers, terms, and loan conditions.

Final Thoughts

Predatory lenders will use deception and aggressive tactics to get you in a situation you cannot afford. These may not necessarily be loan sharks, as many established institutions use these unsavory practices. Knowing what to look for and researching your lender are keys to avoiding a risky lending situation. You could even have a criminal case on your hands.

Be especially aware of short-term lenders that practice double dipping. These companies promote expensive lending products to their customers that are struggling to repay their loans back, thus, double dipping by receiving a kickback from the new lending ‘company’. Report these scams to the Consumer Financial Protection Bureau if possible.