How does a predatory loan work ?
Predatory lending is the practice of using deceptive, unfair, and abusive strategies in lending money. deceitful lenders in the mortgage and consumer lending industries take advantage of borrowers who are lack knowledge about lending practices, getting them to agree to loan terms that are not only less than pleasing, but also financially damaging. Predatory lenders also intend borrowers who are so desperate to get loans that they will agree to nearly anything.
Often, people with bad credit are primary targets for lenders who are involved in predatory lending practices. Individuals with small incomes are often targets, as well as senior citizens, women, and minorities. However, those from all backgrounds, income levels, and occupations can be victims of predatory lending. Many believe payday loans predatory lending. Typically, these short-term loans are offered to those without view to credit. Though these loans are quite easy to obtain, they are granted at unreasonably towering interest rates. In fact, an individual that borrows from a payday loan company may pay more than 100% interest over the life of the entire loan. With interest rates so high, many payday loan borrowers stumble on repaying their loans very difficult.
Predatory lending is not restricted to short-term lending. It is all too ordinary among dishonest mortgage lenders. These mortgage lenders provide loans at very high interest rates, requiring borrowers to agree to terms that are damaging and unfair. For example, a predatory lender may include unreasonable prepayment penalties or balloon payments in a loan agreement. Often these terms are hidden within very complex language, making it hard for the borrower to fully understand what he or she is agreeing to.
Another instance of predatory lending involves buyer loans that are back up by collateral. These loans often carry very high interest rates and need the borrower to offer a house or car as collateral. If the borrower fails, the lender may take ownership of the borrower’s property and sell it to repay the loan. If the lender sells the collateral for more than the amount of the loan, the lender may actually make a earnings on the defaulted loan.
