If a shady, unlicensed lender is only too eager to grant you a loan, it may just be too good to be true. These lenders prey on desperate people in tough economic times. Getting a loan in this economy isn’t easy, but it’s important not to let your guard down, even if (and especially if) you are going through a financial crisis.
Who do predatory lenders target?
According to the Center for Responsible Lending, target consumers for these predatory lenders are people who are in no position to make the loan repayments. People who are not well educated, have poor credit histories, are advanced in years, and other low-income consumers are considered easy prey for these lenders.
The loans offered by these lenders are very expensive as they carry exorbitant interest rates. They are generally open-ended loans such as payday loans, title loans and secured loans like sub-prime mortgages. However, in recent years, unscrupulous lenders have been offering many more types of loans; all the more reason to beware of this practice.
How to avoid falling prey to a predatory lender
First of all, never rush into the loan origination process. Being in a hurry makes you vulnerable, and if the lender senses you are in a rush, they will only increase the pressure and make the loan terms less favourable.
Here is a list questions to review before taking out a loan from any lender:
- What will the actual cost of the loan be after calculating the interest rate, loan origination fees, prepaid interest, and any other upfront or hidden fees?
- What is the loan’s maturity period. i.e., the loan repayment period? Is it six months, ten years, thirty years, more?
- At the time of resetting the loan, what will be the fresh repayment structure?
- When will the rate of interest on the loan be revised?
- Am I financially capable enough of paying back the loan as agreed?
- Is there any kind of penalty for late or delinquent payments?
- Will the interest rate on the loan increase if payments are late?
What recourse do you have if you find yourself locked into a predatory loan?
If you suspect you’ve been victimized by a predatory lender, there are some remedial steps that you can take. First and foremost, if you are in the US you can file a complaint with the country’s consumer watchdog, the Consumer Financial Protection Bureau (CFPB). However, auto dealers are exempt from the jurisdiction of the Bureau. In addition, you can inform your state’s attorney general of your experience. And instead of taking out a loan, you can explore alternatives such as payday loan consolidation, debt settlement, or credit counseling. There are many ways you can resolve financial difficulties without going bankrupt. Keep track of the way you spend your money and follow a stringent budget, especially if you are struggling to repay your loans.
Andy Raybuck is a Professional Financial writer associated with Debt Consolidation Care, who has expertise in dealing with financial issues. He tries to impart to people the different situations and simple solutions to get out of difficult situations by contributing financial write-ups to websites and blogs so that he can help people who are struggling with financial worries.