Bankruptcy

Warning Signs of Predatory Lending

By Editor

Predatory lending can devastate consumers.

Predatory loans can come in the form of credit card agreements, mortgages, payday loans and even bank loans.

Although there's no surefire way to make sure a loan you get is safe, but here are some warning signs that your lender is less than trustworthy.

Lack of Transparency: Any time the terms of your loan are unclear, beware. Some loans come with terms so lengthy and dense with legal jargon that the average borrower has no way of understanding them (think of your credit card agreement).

Hidden Interest: Loan-related costs with names like 'fee' or 'charge' are often just interest in disguise. These can take the form of 'overdraft charges' from a bank, 'fees' on a payday loan, or 'service charges' on a credit card.

Hidden Add-ons: Some unscrupulous lenders will sneak extra services into a loan's terms (e.g. home appraisal fees with a mortgage) without telling the borrower that such services may be available elsewhere for less money.

Outright Lies: Writing a borrower's 'stated income' and similar tricks amount only to lying on a loan form. The only way to be certain that information in your loan documents is accurate is to fill them out (or double-check them) yourself.

Redlining: Aiming loans at specific groups of people is illegal. Studies have found that subprime loans disproportionately affected women, racial minorities, less educated people and the elderly. Other groups may be targeted for other types of predatory lending.

Exorbitant Interest: Sometimes, lenders conceal how much interest they're charging by revealing only short-term interest rates (as with credit card offers) or by disguising interest (see above). Payday loans, for example, can come with a yearly interest rate of more than 300 percent!

The Magic of Negotiation

One way to make sure you aren't victimized by predatory loans is to know as much as you can about them – that way, you can walk away when warning signs pop up. But keep in mind, too, that part of understanding lending is understanding that almost everything is negotiable.

Asserting yourself by trying to get a lower interest rate or a discount of some kind can signal to lenders that you know what you're doing and will not be taken in by predatory tactics. Just be sure to do some research first so you know a reasonable rate to request.

Full post as published by The Bankruptcy Blog on March 23, 2009 (boomark / email).