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What does Predatory Loan mean?
As suggested by its name, a predatory loan refers to coaxing a borrower into accepting a loan that offers unfair or excessive rates, fees and other unfavorable terms. Over the past few years, predatory lending has been prevalent in many areas including home mortgage. Since home loans are backed up by borrower’s real property, a predatory lender can benefit a lot from this.
They mainly target minorities who need protection, poor, the less educated and elderly people. Since they intend to make their profit only, they usually prey on people who need emergency cash such as paying medical bills, college fees or repairing a car.
While these practices may not always be illegal, you really need to be careful while navigating your way through such predatory loan lenders because one miscalculation on your part can leave you out of credits and can cost you a great financial loss. Here’s a quick guide to identify predatory loans.
Borrowers need to be careful
If a lending offer sounds too good to be real, it probably is. Before you sign any loan agreement, it is strongly recommended to read the entire document and payment policy/terms to avoid any miscommunication in future. What these predatory lenders do is, they verbally inform you about the written contract and try their best to entice you into accepting their offer. People, who do not have much expertise in the field, comply to their demands and what was supposed to be an investment for them eventually turns into a nightmare.
Moreover, these types of loans usually come with higher interest rates and unnecessary charges. We are not discouraging you to enter into such an agreement but if you plan to do otherwise, it is suggested that you do it with open eyes.
Transparency of Cost
If you fail to ascertain the actual cost of loan, something is definitely fishy. A lender who is practicing legally following all necessary rules will never hesitate to tell you the cost transparency. You should also consider tracking their services which include their website as well as their physical location. If the situation seems satisfactory to you then it should be no problem for the lender to provide you with all the information related to the desired funding option.
Ensure Credibility
If a lender approves your loan application without verifying your loan history or financial resources, you are probably in the wrong shop. If the interest rate is usually higher the standard rate, then it is more likely to be a scam.
Beware of Balloon Payments
Another factor which identifies a predatory lender from a regular lender is the usage of balloon payments. It is usually common amongst mortgage lenders. It structures your loan in such a way that your initial payment is low but then you have to give a significant amount at the end of mortgage.
All in all, it is extremely challenging to navigate your way through these scammers but if you have the right knowledge and expertise, you can easily find you way through.
