Predatory lending – Ugly side of the finance world

Posted By Keira Hardy on Aug 6, 2016 |

      Predatory lending is a term used to describe all sorts of fraudulent practices that include loans. The law that protects the people from predatory lending doesn’t exist, but some laws protect individuals from specific actions that are considered as predatory lending.

   Every pending practice that is unfair in any possible way falls within this term. The most common types of frauds or discriminatory lending that people consider as predatory lending are:

–    Every borrower should know that the price of the loan is negotiable. Some lenders won’t share that information. They will say that the price is the best possible offer and that they have close to nothing out of that deal. In the reality, they are hiding the fact that the price is fully negotiable and that you could get a better deal after a short bartering session.

–    Lenders want money, and they will do anything to get it. Single-premium insurance is just another way for them to cheat the people in giving them more money. They advertise this insurance as something that will ensure the return of the loan in the case of death.

–   People who wouldn’t want to encumber their family members opt for it, but they are getting cheated. In most cases the insurance costs money, but in this case, the price of the insurance is nowhere to be found. In reality, the loan is substantially increased to cover the expenses of that loan.

–    Risk-based pricing is another form of predatory lending, and it is a subject over which many people still argue. A lender has a right to choose what kind of interest rate they will give to each and every one of their customers. Clients who they deem “high-risk borrowers” get loans with higher interest rate.

–    For a long time, there is a debate about whether they should have a right to decide points of a credit for every single borrower. This hole in the law allows lenders to give their borrowers high-interest rates even though they aren’t high-risk individuals.

–    Payday loans are another form of predatory lending that uses short-term loans with very high fees. The law about these loans is vague, but some limitations stop these lenders from over-pricing their loans. But the number of online payday loan companies that don’t follow the word of the law is enormous. No legal actions have been done to stop them, and people that get cheated can’t do anything but repay the loan they took. You can find more about this on Yahoo.

–    If a lender fails to disclose full terms and conditions, then they may be using the lack of knowledge of the borrower to gain an unfair advantage. Every borrower should ask for full disclosure as they will have to obey to everything written in those terms and conditions.

 –     Some lenders will try to avoid full disclosure because they input some unreasonable demands in the terms and conditions. Victims that fall into this trap have no option but to obey as they have accepted everything beforehand.