Avoid Being a Victim of Predatory Lending

What is a Predatory Loan?

A predatory loan is a dishonest loan. Predatory loans harm borrowers by making it difficult or impossible to keep up with payments. Borrowers may pay unnecessary fees and excessive interest charges. If they miss their payments, they risk losing their home.

Predatory lenders prey on people who are unfamiliar with the banking system. They target seniors, minorities, or anyone whose credit makes it hard to get a regular bank loan.

What makes a loan predatory?

Predatory loans take advantage of borrowers with a variety of abusive practices.

Predatory lenders:

• Target people of color, elderly and disabled people for high-cost loans;
• Charge excessive interest rates and higher fees;
• Keep secret the true costs and terms of the loan;
• Approve a loan without considering a person's ability to repay;
• Convince borrowers to refinance frequently (or "flip") the loan;
• Carry terms that make it difficult for the borrower to refinance later.

Danger signs of a predatory loan

• Total bank fees greater than 2%;
• Balloon payment (a lump sum due at the end of the term of the loan);
• Pre-payment penalties;
• Loan is based on home equity rather than the borrower's income;
• Credit life insurance added to the loan.