Are you looking for a loan?
For most large purchases, getting a loan is the normal and sensible thing to do providing you can pay it back. The last thing you want is to end up trapped in a high-interest payment plan. But spotting predatory loans isn’t always easy.
Don’t worry, we’ve got your back! Keep reading for these 7 signs to look for to avoid predatory loan companies today.
1. The Offer Looks Too Good to Be True
A key tactic of predatory lending is to lure you in with promises. They’ll say you can get money fast at a low-interest rate, with easy approval regardless of your credit score.
But here’s almost always hidden costs. Interest rates will skyrocket after a few repayments, or you’ll face ultra-high fees. Take this as a big red flag and read the fine print with extra care.
2. You Don’t Know the Actual Cost
A reputable lender will always break down all the costs associated with your loan. This includes:
- Prepayment penalties
- Length of term
Predatory lending companies will try to hide those costs as much as possible. If you’re not getting the information you need, step away and find another lender.
3. There’s No Credit Check
Most reputable lenders will do a credit check to see if you can afford the loan and how you handle debt. If they don’t check this, it’s a sign they don’t care if you can pay the loan back.
They’ll get their money out of you some other way, like:
- Charging extortionate fees
- Raising Interest Rates
- Taking your car or home as collateral
- Getting direct access to your bank account
The lender will be fine if you can’t pay, but you won’t be. You could lose everything.
4. The Rates Are Extortionate
Both the MLA and a lot of state laws cap interest at 36% APR. If you see a rate higher than that, it’s going to be unaffordable.
Another of the best loan borrower tips is to add the fees up. These shouldn’t add up to more than the amount you’re looking to borrow.
You could end up stuck in a spiral of debt, borrowing more to try to make your payments. If this sounds familiar, there’s help out there. You can consolidate payday loans to help manage your finances.
5. The Personal Loan Lender Isn’t Licensed
Don’t trust any offer that comes through the mail, over the phone, or by a door-to-door salesperson. Reputable lenders won’t often advertise this way.
If you do want to look into those offers, Google the lender and check they’re licensed. If not, they’re a private lender (loan shark) and won’t be subject to any banking laws.
6. They Only Allow Electronic Payments
When a lender only allows this method, that’s when you should be careful. If you don’t have the money in the account when they request it, they’re likely to keep spamming that request. Once they get through, you’ll face huge overdraft fees.
7. They Have a Bad Reputation
A reliable lender isn’t likely to have many complaints. If there are more bad reviews than good, it’s better to dodge the bullet and look elsewhere.
Avoiding Predatory Loans Made Easy
So, there you have it! Now you know these 7 signs of predatory loans, you’ll know what to look out for.
Always research lenders before agreeing to anything, and be wary of offers that look too good to be true. Make sure you have a full breakdown of what the loan will cost, and only choose a reputable lender.
If you found this article helpful, check out our other blog posts for more!