16 May 3 Signs of a Predatory Lender
Posted at 3:36 pm in Collections by Brian Price
This should be used as information only and is not intended to be considered as legal advice.
Almost everyone experiences money problems at one time or another. There are lenders who provide money on a short-term basis which allow someone to get through the money crunch. A legitimate lender will make a loan to a borrower with the expectation that the borrower will pay back both the principal and the interest. The interest is the profit going to the lender. The lender wants the borrower to pay the money back according to the loan terms.
A predatory lender on the other hand, does not want the borrower to ever completely pay the loan off. A predatory lender intends for the borrower to stay in debt to the lender for a lengthy period. The lender can squeeze money from the borrower if the loan is still due. Borrowers can find themselves trapped in an endless cycle of debt payments. Although the following does not reveal every ploy used by a predatory lender, it can give a potential borrower some idea when dealing with a potential lender.
1. Never-under any circumstances-sign a blank or incomplete contract. When a borrower signs a contract with either incomplete or missing information, the lender is free to put in any amount or information. This subjects the borrower to terms that he or she never intended or wanted. The most common information that is filled in after obtaining the borrower’s signature is the loan amount, interest rate, and the date in which the loan payments are due. The borrower should run from any lender who presents a loan document with missing or incomplete information. A legitimate lending operation will always present a complete set of loan documents to a potential borrower.
2. Another warning sign of a predatory lender are hidden add-on loan fees and services. All of these fees are extremely profitable for the lender and a bad deal for the borrower. Some examples of the most common fees are life insurance on the borrower for a personal loan or roadside assistance for a car title loan.
The problem is not that these services are inherently a scam or worthless. Rather, the issue is the amount of money these services cost the borrower. Most borrowers can obtain better rates from a third-party. Any fees or services should be clearly stated in the loan documents not hidden.
Some lenders may require that the borrower purchase the additional services as a requirement for obtaining the loan. In this case, the borrower should ask if he or she can obtain the service from an outside source. The lender is still protected and the borrower gets the service at a reduced price. If the lender refuses, then more than likely the borrower is dealing with a predatory lender.
3. Loans that rollover quickly are another favorite tactic of a predatory lender. There are usury laws which cap the interest rate that can be charged on a loan. Some lenders seek to avoid or get around the laws by rolling over a loan. For example, the loan will be due in 30 days. If the loan is not completely paid off, then a new loan will be created for the remaining principal and interest. Loans that are rolled over or refinanced can quickly go into 3 digit interest rates. In that scenario, the borrower becomes trapped in a world of continuous debt to the lender.