Predatory lenders deceive, manipulate, pressure or engage in fraud to get a borrower to take out a loan. A predatory loan has terms that put the borrower at a big disadvantage, and usually has excessive interest rates and hidden terms and costs that the borrower does not understand.
Predatory lending abuses could be found in any kind of institution, but such abuses are often associated with rent-to-own contracts, pawn shops loans, payday loans, subprime mortgages, tax refund anticipation loans, overdraft loans and car title loans. New predatory lenders, including online lenders, are popping up every day.
Asking the right questions before agreeing to a loan can help you fully understand what you are committing to. Consider asking questions like these before applying for any kind of loan:
- What papers or information will I need to apply?
- What fees will I need to pay up front?
- How long will it take to process my application and get me my money?
- What are the total fees I will pay for the loan itself and all related requirements?
- What will the annual percentage rate (APR) be when you include all fees associated with the transaction?
- How much interest will I pay over the life of the loan? Does the interest rate stay the same for the entire loan?
- What will be my monthly or weekly payment?
- Can I make extra payments or pay the loan off early without penalty?
- Will my payments ever increase? If so, why?
- Are there extra fees if I pay late?
- Where do I make my payments?
- How long is the loan?
- Is there a large lump-sum payment at the end of the loan?
- Can I have a copy of a Good Faith Estimate or a written statement with all the fees and loan terms listed?
- How long has your company been in business?
- Who do I contact if I have questions about my loan?
- What agency or office regulates you as a lender?
Questions specifically for pawn shops:
- How much will you charge for insuring and storing what I am pawning?
- Are there any other extra fees besides the interest?
Any reputable and honest lender should be more than happy to answer your questions. Their hesitancy to do so is a red flag. If possible, get information from at least three lenders before making a decision to borrow. You may decide that every store’s fees are too high and rethink the loan. Sometimes waiting to spend the money or coming up with it another way may make more sense once you fully understand the costs.