Personal loans are a means to receive money in order to buy things, as long as the borrowers fulfills the terms of their loan by repaying the amount they borrowed over time.
As long as the borrower maintains a good credit score and credit history, among other things, they’ll be able to take out most personal loans.
But even if your credit and credentials are in good condition, it doesn’t necessarily you should take out a personal loan—especially if you don’t know how to look out for predatory lenders.
So, what is predatory lending? Predatory lending can occur if you’re looking to take out a personal loan – or any type of loan – and the prospective lender offers you terms that may seem questionable. Many of these lenders offer high interest personal loans and payday loans, promising to uphold the terms to borrowers who agreed to take on the loan.
Predatory lenders, however, often end up breaking their promises.
Unlike reputable and licensed moneylenders, predatory lenders can do serious damage to a borrower’s credit history, credit score and their finances. People who have been preyed upon by predatory lenders tend to keep paying off their loans for an indefinite period of time. No one wants that.
How can you avoid potentially coming across a predatory lender? If you’re looking to take out a personal loan soon, here are five signs explaining why you should avoid that money lender.
- You incur payments for paying off your loan too early.
It’s somewhat silly incurring a fee for repaying your loan too early. Some lenders, however, take this very seriously. People who take out loans under these moneylenders have to pay a ‘prepayment penalty’ if they repay their loan too early—and sometimes this penalty can last longer than expected.
- Unnecessarily high interest rates from lenders.
The classic sign of a predatory lender. Predatory lenders tend to charge higher interest rates because they cam make more money if they raise the interest rate well above what the market dictates. If you suspect the personal loan interest rate is too high, even after asking them, steer clear.
- Targeted predatory lending.
Predatory lenders tend to targeted people of specific demographic groups, especially low income prospects, in order to encourage them to take out a loan that’s well beyond their means. No reputable and licensed moneylender should encourage you to take out a loan you can’t repay, whether payday loan or personal loan.
- ‘Exploding’ adjustable interest rates.
As mentioned, steer clear of lenders who excuse their unreasonably high interest rates. You should also avoid lenders who give you a favorable interest rate for an adjustable rate loan, particularly an adjustable rate that looks as if it’ll ‘explode’ in the near future. While you can generally tell if the rate will trend lower or higher, run away if you suspect it might be the latter.
- Unreliable repayment costs.
A reputable money lender should always tell you everything to expect when it comes to your loan, including its expected taxes and insurance. If your prospective lender won’t talk about those particular costs, find another one as soon as possible.