Keys to Avoiding Predatory Lending Schemes

Many applicants are hesitant about applying for money loans because they are worried about predatory lending schemes. Predatory lending schemes refer to the act of using fraudulent or deceptive methods to create a lending plan. In these plans, applicants end up owing the lender much more than they actually borrowed, and often are required to pay the lender back in a short amount of time, otherwise, they must pay additional interest as time goes on. Many predator lending schemes rely on creating these kinds of situations, since it traps the applicant in a loop where he or she is unable to fully pay off the lender because he or she keeps owing more due to interest. Predatory lending schemes are very scary, but they should not discourage applicants from taking out money loans if they need the assistance, it just means that applicants must be careful about which plans they accept. More information regarding how to avoid predatory lending schemes is covered in the following areas:

  • General Predatory Lending Schemes
  • Mortgage Predatory Lending Schemes
  • Legal Options Against Predatory Lending Schemes

General Predatory Lending Schemes

Predatory lending schemes are most often associated with cases involving taking money out for mortgages, but they are not solely limited to mortgage cases. There are a couple of general red flags that applicants should look for whenever they are dealing with any type of money lender. A common tactic that predatory lending schemes use is offering a short-term loan with a high interest rate. These types of predatory schemes are very common with car loans.

Another warning sign is when the money lender offers more money than what the applicant asks. Money lenders do this because the more money the applicant takes, the harder it is for the loan to be paid back, which means it incurs even more interest as time passes. Something else to look out for is money lenders that do not perform credit checks, or insist that bad credit is not a problem. It is important to note that there are some legitimate money lenders that do not worry about bad credit, but these are often specialized money lenders that specifically work with lower-income individuals.

One of the more direct ways money lenders try to trick their applicants is when they either discourage the applicant from reading the application, or if the application has many blank spaces. Most legitimate money lenders allow applicants at least a few days to look over the application and to consider all their options. When reading through the agreement, applicants should carefully scan the fine print. If there is anything that says the applicant cannot take legal action against the money lender, it is likely a predatory lending scheme.

Mortgage Predatory Lending Schemes

There are a few predatory lending schemes that apply specifically to mortgage payments. One of these predatory lending schemes is known as loan flipping. ‘Loan flipping’ is when the money lender offers to lend money to refinance a mortgage, but then charges additional costs for things like closing fees, refinancing expenses and other mortgage-related charges. All of these charges end up with the applicant owing much more than he or she initially borrowed from a money lender, especially since these plans, oftentimes, have very strict interest rates.

Another type of predatory lending scheme relating to mortgage is ‘equity stripping’. These are loans where a money lender offers to buy property from the applicant instead of the applicant having to foreclose on his or her property. Once the money lender has the property, he or she will lease it back to the applicant. These plans are very dangerous, because they prey on vulnerable homeowners who are afraid of having their houses foreclosed on. Because of that, money lenders have an easier time pushing the loans on the applicant, making it harder to read through the contract. It also puts the money lender in a greater position of power. Money lenders can increase the charges for the applicant, or they may even end up keeping the properties for themselves.

Legal Options Against Predatory Lending Schemes

There are already several laws designed to preventing predatory lending schemes from existing in the first place. Unfortunately, anyone that is already caught up in a predatory lending scheme does not have that many options. Anyone borrowing money can technically take legal action against his or her money lender, but in many situations, predatory money lenders will not bother showing up to court. Many money lenders rely on short-term schemes to get as much money as possible in a short period, and then they will flee once they are discovered.

Many money lenders also try to pad their contracts with legal loopholes. However, since many of the predatory lending schemes rely on illegal tactics, these clauses do not actually offer protection. Most money lenders include them with the hope of discouraging applicants from taking legal action against them. If someone already in a contract believes the contract is not legally valid, he or she should bring it to a lawyer to see whether or not to challenge a money lender in court.