An Extensive Overview About Predatory Lending Practices
All of us are familiar with loan lending practices but most of us are unware of the most common one and perhaps the most dangerous one; Predatory Loans. Predatory loan lenders usually target small business owners. This is usually because they know their weakness. Small business practitioners are in need of resources and investment and especially startups with no record of success. This in turn is presents them with catch-22 situation as they fail to request loan from a mainstream bank. It is in these vulnerable times when predatory lenders approach you taking advantage of your position.
Before we look into these practices, it is essential for you to know what is predatory lending.
· What Is Predatory Lending?
It is referred to as the imposing of unfair and abusive loan terms on borrowers. This can happen in two ways. First one is that the language of the terms may be written in a way as to sound reasonable but it is actually not. Predatory lenders may also converse with you and you might get impressed with their bright deals and offers but in reality, it is probably a façade. Secondly, even if the terms of the loans are obscure to you, you would still want go for it because you are out resources. Either way, it guarantees anything but a bright future.
· Obscure Pricing and Terms
This may be identified by lack of transparency or when fees/interest rates are not mentioned as APR. Make sure that when you are presented with the contract terms, they are understandable and calculable.
Because, we live in an ideal world, therefore each lender is expected to be upfront and straightforward about fee, risks and terms. What shady lenders may do, they will design the format in such a way to keep you in the dark and will prevent you from getting a clear sense of what is going on. That is why one should make sure that he asks all the relevant details beforehand and if your lender is an honest one, he should answer all your questions clearly
· Abusive Broker Practices
One major sign of encountering a predatory lender is that brokers will not disclose complete fee information and will try to push you into accepting a loan you are not comfortable with.
For starters, find out whether you will be paying a kickback to the broker. They may inflate the interest on your loan and call it “yield spread premium” whereas in reality it means that you will be paying more than you have to.
There are other practices through which a lender can entice you into accepting a loan which may or may not be in your favor but it is always advisable to check the background of the lender as well of his company to save yourself from potential loss. Make sure you go through the terms thoroughly before you sign the contract.
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