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Avoiding Predatory Lending
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Alexander
Student Contributor
Posted March 19, 2019
Loans are everywhere and most people use them at some point or another, be it for a car, a house, or for everyday purchases. But where there’s money involved, there’s almost always fraud. Predatory lenders seek to take advantage of the need for credit and use it against consumers for their gain. Hopefully this information can help you avoid such tactics.
Who are predatory lenders?
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Predatory lenders are individuals or businesses who take advantage of people’s need for credit as a means to generate unfair profit. Oftentimes, they will lend money to individuals knowing the debt may never fully be paid back, instead relying on fees, etc. to make a profit. Many people targeted by predatory lenders become trapped in a debt cycle, having to incur new debt and fees to pay back their previous debts and fees, which are all typically owed to the same creditor.
Who is at risk for predatory lending?
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Everyone in one way or another is at risk for predatory lending, but predatory lenders do target certain people very deliberately. According to Craig Laurie, legislative analyst for the Michigan Senate, those more at risk are women, minorities, people living paycheck to paycheck, people affected by disasters, and the unbanked (or people who do not use credit unions or banks). These groups have historically had more trouble getting loans and lines of credit and are therefore many times targets for predatory lenders. Predatory lenders will often approve just about anyone at high interest rates, typically in the hopes that they will default and pay more fees.
What are the signs of predatory lending?
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A predatory lender will likely never admit that what they are doing is predatory, but there are telltale signs consumers can rely on. These include but are not limited to:

- Interest rates far exceeding the average

- Loan terms that are very short, typically less than six months

- No credit score check and/or very easy approval

- Unrequested offers, like loan offers through the mail or online

- Offers to borrow far above what you may actually be able to repay
 
How to avoid predatory lending?
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Now that you know the indicators, avoiding predatory lenders requires a little effort on your part. You can avoid predatory lenders by:

- Avoiding offers for loans or new lines-of-credit you did not request

- Having an idea of how much you can afford to repay (monthly and total)

- Obtaining credit from reputable financial institutions like credit unions and banks

- Shopping around for the loan that fits your needs

- Reading the terms of any new loans or lines-of-credit closely and asking plenty of questions

 
For more information on predatory lending and how to avoid it, visit www.senate.michigan.gov/sfa/.
 
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