October 31, 2019 • 4 mins
If you’re in the market for a loan, you are probably aware that some products are better than others. However, some loans have such poor terms, fees, and interest rates that they are considered predatory.
Predatory lending is pushing unreasonably expensive purchase loans or refinancing. You can avoid predatory lending by knowing which loans fall into this category, and by taking steps to qualify for a higher quality product. If you ever have questions about a loan – whether it’s one of ours or someone else’s – visit a branch and talk to us. You can also chat online with BALANCE – consultations with them are free for Patelco members.
There’s some common red flags for predatory lending. Watch out for lenders that:
A primary defense against predatory lending is to become an informed consumer. Read all contracts carefully, paying close attention to interest rates and what can happen if you miss or are late on a payment. Look out for misleading marketing and high-pressure sales techniques too. Though these loans may be advertised as a way out of financial trouble, getting them often leads to higher and more expensive debt.
It is very important to know your financial limits, especially with mortgages. You may not only lose a lot of money, but also your home if you fall behind on your payments. Never let someone talk you into taking out more than you can comfortably handle.
Building a positive credit history is also key. You can do this by paying all your debt obligations on time, reducing balances on credit cards and personal loans, not closing accounts that you have had for a long time, avoiding excess credit applications, and having a mix of credit accounts (such as credit cards, charge cards, and installment loans). Once you’ve proven you can borrow responsibly, you increase your chances of being eligible for loans with low interest rates and excellent terms.
There are other types of predatory lending as well, and they are promoted to people with no or damaged credit who need money for emergencies. These loans come with exceptionally high interest rates and can feature terms that make repayment difficult:
What to do if you suspect predatory lending
If you believe that a lender unlawfully changed the contract, mislead you, added products you didn’t agree to, or persuaded you to accept a loan that had worse terms than you qualified for, you can contact your state’s attorney general’s office as well as the Consumer Financial Protection Bureau at consumerfinance.gov or 855.411.2372.
Source: Broadridge Financial Solutions, accessed July 31, 2019.
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