How to Avoid Predatory Lending

How to Avoid Predatory Lending

If you are in need of a personal loan, the first thing you need to do is to do research on your options. There are a lot of companies that can offer you a loan without any hassle. But you should also know that not all of these companies are legitimate. If you want to be extra cautious, it would be better if you could first consult your bank or credit union regarding your loan needs.

Predatory lending refers to lending policies that impose abusive and unfair loan terms to borrowers. These companies are often experts at convincing borrowers that they have poor credit options and that they will most likely not be able to obtain a loan with competitive interest rates. Predatory lending usually makes use of aggressive sales tactics and takes advantage of borrowers who lack knowledge of proper financial transactions. These companies target low income and minority borrowers, which is why you have higher chances of falling for a predatory lending scam. Aside from these factors, predatory lenders are also engaging in illegal practices such as false advertising and misleading loan offers.

You can help avoid predatory lending by being informed on loan options. Always remember that you should not just accept what a lender tells you. Do your own research and determine the interest rate, the tenure of the loan term and other charges involved. And when shopping for a lender, always make sure that the company has been registered with the Better Business Bureau and is financially stable. A borrower should also consider the value of the collateral. If the loan has an asset value that exceeds the value of the collateral, then the lending activity would be considered predatory.

To prevent predatory lending, a borrower should be able to tell the difference between a legitimate lender and one that engage in predatory lending. A borrower should know where to find legitimate lenders. You can start off by asking around. Make a list of reputable business owners whom you know will be able to offer you the right loan terms. Then, compare the quotes of these business owners so that you will be able to find the best rates and deal with a responsible lender.

Another way of avoiding predatory lending is to do your own research. Check with the BBB and find out how a particular lender fares when it comes to consumer complaints. A borrower should also check his or her credit score before applying for a loan. The score will show you if the lender checks your credit repeatedly and if there are any negative marks on the record. When you have a high FICO score, you will get better loan terms because most lenders consider you to be less risky.

There are still many ways that borrowers can avoid predatory lending. A borrower just needs to do a bit of research before choosing a lending company. Most subprime loans today were issued through legal practices so borrowers should not worry about being charged excessive interest rates.