Water is a vital resource for life on Earth. But it’s highly coveted during the dry months in South Africa. During the summer season, many animals have to compete for a drink at the local watering hole. A cautious impala takes a long sip of lifesaving water.
Meanwhile, lurking just beneath the murky ripples is a hungry crocodile timing her deadly lunge.
In some ways, searching for a loan mirrors the impala’s plight. People need loans to make important purchases or overcome serious debt like an impala needs water. But occasionally, nefarious intentions hide within the terms of the loan—just like the sneaky crocodile. This is what’s known as a predatory loan.
Below, we’ll cover the need-to-knows regarding predatory loans, including how to spot them and how to escape them.
What Are Predatory Loans?
First, it’s helpful to define what makes loans predatory.
Predatory lending is any practice that fools a borrower into accepting unfair terms, which could otherwise be described as coercive, deceptive or exploitative. Similarly, predatory loans include any form of lending that imposes abusive terms upon the borrower.
Examples of predatory loans can include a home mortgage far and beyond the borrower’s ability to pay off, as well as payday loans.
How to Spot a Predatory Loan or Lender
By design, many predatory loans are tough to spot. After all, nobody tries to put themselves into a compromising situation.
That being said, there are a few telltale signs.
The first is inadequate disclosures. If the lender is unwilling to discuss the terms in depth, they might be trying to pull something over on you. Remain wary of lenders who want to rush you through the process.
Hidden fees and inflated charges are another red flag. In most cases, these are hidden in the fine print. If you aren’t careful, you’ll only realize that you’re over paying once the payments are due.
Did the lender solicit you? That might be a warning signal. Sketchy lenders often reach out via phone calls, emails, and mailing promotions hoping to snare their next stooge. In many cases, the offers seem too good to be true. Don’t fall for it. Find a reputable provider on your own terms.
How to Escape a Predatory Loan
Escaping the jaws of a predatory lender isn’t easy. All too often, victims lose their homes, suffer high default rates, or sustain big hits to their credit score.
Fortunately, there are a few legal protections for borrowers in a bad situation. The first thing you can do is report the naughty lender to the CFPB (Consumer Financial Protection Bureau), especially if they lied to you or misled you about the nature of your loan.
In some cases, you can even rescind your loan. Under the Truth in Lending Act (TILA), borrowers can cancel a loan within a three-day period without much hassle. Predatory lenders don’t want you to know this, but if they fail to alert you to this fact, the entire contract might be moot.
Your final option is to hire a lawyer. Admittedly, legal services can be very costly. So, determine the costs before proceeding. Keep in mind that some lenders protect themselves against lawsuits by including a mandatory arbitration clause in their agreements. This is designed to put you, the borrower, at a disadvantage. So, keep an eye out for this vicious clause.
Finding a Reputable Lender
Hopefully, this article hasn’t scared you away from borrowing money since there are plenty of legitimate and reputable lenders out there. And like the impala that needs water, sometimes you need to take out a loan.
If you are looking to purchase a home, find a lender willing to work within your budget. A reputable lender will be upfront about the cost, the interest rate, any fees, and any potential difficulties. After all, these lenders want to make a valuable investment in you, rather than in your failure to pay them back.
If you are trying to escape the dregs of debt, consider a debt consolidation loan from a trustworthy organization like Consolidation Plus, Freedom Debt Relief and others. The organization will likely look at your financial situation and provide a workable way out of debt. Beware of any debt consolidation loan that charges enormous interest rates, because that’s simply swapping one problem for another.
While borrowing money might be scary, a careful borrower can secure a loan that works with them and for them. Don’t be discouraged. Just be aware!