How to Avoid Predatory Lenders

What is Predatory Lending?

“Predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower.” It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative, or unscrupulous actions for a loan that a borrower doesn’t need, doesn’t want, or can’t afford. What you can afford however may not be what a traditional bank thinks you can afford. Choosing to use alternative lenders means taking the time to carefully understand what your loan terms are and what your capacity is to repay them.

Here are some red flags to look out for when you venture into the world of alternative lending.

Blank Spaces in Documents

Be careful of what is not in the documents you sign. Have. lawyer review any contract, there are services like LegalZoom, Trust & Will, and Trademarkia that offer online legal services at reasonable rates.

Prepayment Penalties

While prepayment penalties are common, even with traditional banks, be sure you know how much they are and at what point in the loan’s lifecycle they will be waived.

Additional Services packed into a loan

Predatory loans sometimes have health insurance or other add-ons packed in. If it’s not directly related to what you are getting your loan for, make sure it is removed.

Extra-Fast Closing

Speed can be important but being rushed to sign is a red flag. Take the time to read what you sign to be sure you are knowledgable about your loan’s terms, fees, schedule and requirements.

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