Not all unscrupulous lenders are fraudulent. However, some companies approve credit and attach ridiculously high interest rates and other terms that are not to the borrower’s advantage. This credit approval is known as predatory lending. People with poor credit, low income, and no credit history turn to these types of lenders when they are unable to qualify for credit with traditional institutions.
Predatory lenders are legitimate companies that follow all regulations required to stay in business. They get their name because they prey on unfortunate borrowers by charging them interest rates as high as 300%! One of the worse offenders are payday loan companies, who lock borrowers into an endless cycle of compounded interest payments that are so high that borrowers are unable to pay the principal.
The mortgage loan industry is another area rife with predatory lenders. Homeowner hopefuls will agree to pay almost anything for an approval. And while these lenders do follow real estate law, they take advantage of naïve borrowers who don’t know better. In the end, the homeowner gets stuck in payments he can’t afford or faces foreclosure.
The same suggestions with regard to dishonest lenders are helpful in avoiding predatory practices. There is never too much research to be done when it comes to making sound financial decisions. There’s strength in numbers so, before signing, borrowers should seek advice online and from people they know and trust.