Many consumers have experienced a financial setback due to the Covid pandemic. Loss of employment, unemployment checks being delayed have put enormous strains on budgets and consumers are desperate and seeking short term financial solutions. This is the perfect storm for predatory lenders as they step up their marketing efforts online, social networking sites and television campaigns. Needless to say these are loans which should be avoided at all costs. Let us define predatory lending and review some of the common tactics used to lure in consumers with promises of quick cash.
Predatory lending is any lending practice that imposes unfair and abusive loan terms on borrowers, including high interest rates, high fees, and terms that strip the borrower of equity. Predatory lenders often use aggressive sales tactics and deception to get borrowers to take out loans they cannot afford.
Common Predatory Lending Tactics
1. Limited Time Offers. Loan officers require you to act immediately, with statements such as “If you don’t decide today, you will lose this great opportunity!” or “This is your only chance to get a loan!”
2. High-Risk Loans. Loans with confusing or unclear loan terms, balloon payments, or steep pre-payment penalties.
3. Higher Loan Amounts. Lenders allow borrowers to finance more money than they need or can afford. Some lenders will attempt asset-based lending, offering loans based on the amount of equity instead of the borrower’s ability to pay.
4. High Fees or Costs. Lenders charge fees for unnecessary or nonexistent products or services, or may inflate these fees, charging much more than reputable lenders.
5. False or Hidden Disclosures. Lenders misrepresent costs, using tactics like providing false appraisals or changing the loan terms before closing.
Here are a few tips to help you make an informed decision and avoid predatory lending:
1. Shop for a loan. You do not have to take the first loan offered to you; compare rates and terms from several different lenders.
2. Ask questions. Make sure the lender explains any part of the loan you do not understand.
3. Beware of deals that sound too good to be true. Some of these offers may be scams.
4. Know your financial situation. Understand your financial limits and determine the loan payment you are comfortable making.
Consumers should beware of quick cash, fast loan ads and should consider contacting your creditors directly and communicate your situation and make sure you inform them if it is Covid related and ask for relief. Consumers may contact Debt Management Credit Counseling Corp, www.dmcconline.org and speak with a certified credit counselor or ask to speak with a housing counselor if they are behind on their mortgage.