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If you need to borrow money, a wide variety of legitimate personal loan companies offer fair rates and terms. But unfortunately, you also have to watch for predatory lenders and scammers looking to take advantage of borrowers who are desperate for a loan.
If you’re wondering what predatory lending is and how to avoid it, here’s what you should know:
- What is predatory lending?
- How to spot a predatory lender
- Signs of a reputable lender
- Alternative loan options to predatory lending
What is predatory lending?
In general, predatory lending is any practice that inflicts unfair or abusive terms on borrowers — such as extremely high rates and fees.
This kind of lending often targets borrowers with poor credit scores who have a harder time qualifying for loans. But anyone can be the victim of a predatory loan if they don’t know what to watch out for.
How to spot a predatory lender
While there’s no official consensus of what constitutes predatory lending, watch for these common red flags of predatory lenders when you’re shopping for a personal loan:
Poor consumer reviews
Reputable lenders sometimes have dissatisfied customers, but you should be able to find a reasonable amount of good reviews. If the overwhelming majority of consumer reviews for a lender are negative, there’s a good chance the lender is predatory.
Learn More: How to Get a Personal Loan
Seems too good to be true
Applying for a loan online is often a quick and easy process. But if the lender skips common application steps and offers you a loan that you likely wouldn’t qualify for from other lenders, there’s a good chance it’s predatory.
- Push you to borrow more than what you asked for
- Skip a credit check
- Not ask about your existing debt or income
- Encourage repeat borrowing
- Require automatic payments as the only possible payment option
Trust your gut — if a loan seems too good to be true, it probably is.
Check Out: How Long It Takes to Get Approved and Get a Personal Loan
No mention of APR or fees
Reputable lenders want you to know exactly how much a loan will cost you over time, which means making sure you know your exact annual percentage rate (APR). Keep in mind that APR includes not only your personal loan interest rate but also any fees you’ll pay over the life of the loan, such as origination fees.
Lenders must legally disclose their loan rates and fees. But a predatory lender will likely bury this information in fine print rather than clearly stating what you can expect to pay.
If the lender charges you $15 per $100, you’d owe a total of $575, which equates to an APR of almost 400%, according to the CFPB. While this might not seem like much, note that with a payday loan, you must repay your balance by your next paycheck — and in many cases, by auto-withdrawal. If you don’t have the money by your next paycheck, you could be hit with fees from your bank and the lender.
Learn More: Debt Consolidation Loans
High-risk secured lending
Some dishonest lenders might target older borrowers or those with low income or bad credit who are looking for a mortgage. They might use a deceptive practice called equity stripping, which is when a lender offers you a loan based on how much equity you have in your home rather than how much you can actually afford to repay.
Since the loan is secured by your home, the lender can foreclose on your home if you aren’t able to make your loan payments.
Loan flipping occurs when a lender pressures a homeowner to refinance their mortgage loan repeatedly, and often within a short period of time.
Each time you refinance, these lenders might charge high points and fees, costing you more money. Some of these loans might also have higher interest rates, and the closing costs and origination fees could outweigh any potential savings.
Signs of a reputable lender
Thankfully, many reputable personal loan lenders don’t engage in predatory lending practices. Here are some signs of a trustworthy lender:
- Clearly discloses rates and terms: A reputable lender will clearly advertise the APRs you can expect on its loans. This includes both rates and any fees.
- Requires a credit check and income documentation: When you apply for a loan, the lender will perform a credit check to determine what interest rate to offer you. You’ll also typically need to submit documentation showing your income and other debts.
- Has positive reviews: A reputable lender will have satisfied customers, which means you should be able to find positive reviews.
- Offers financial tools and education to borrowers: Reputable lenders don’t want borrowers to take on more debt than they can handle. Because of this, many lenders provide tools, calculators, and other educational resources to help you decide whether their loan product is right for your financial situation.
If you’ve found a reputable lender to work with, be sure to consider how much a loan will cost you before you borrow. This way, you can be prepared for any added expenses.
You can estimate how much you’ll pay for a loan using our personal loan calculator below.
Enter your loan information to calculate how much you could pay
With a $ loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the loan.
Alternative loan options to predatory lending
If you have poor credit, you might feel like predatory lenders are your only option for accessing cash in a hurry. But a few alternatives are available that don’t come with astronomical rates and fees and won’t trap you in a downward spiral of debt.
Here are a few potential options to consider:
Personal loan from a reputable lender
You’ll typically need good to excellent credit to qualify for a personal loan — a good credit score is usually considered to be 700 or higher.
But several lenders offer personal loans for bad credit. While these loans tend to have higher interest rates compared to good credit loans, they’ll most likely be much lower than what you’d pay with a predatory lender.
You might also have an easier time qualifying for a personal loan if you apply with a cosigner who has good credit. Not all lenders allow cosigners on personal loans, but some do. Even if you don’t need a cosigner to get approved, having one might get you a lower interest rate than you’d get on your own.
If you decide to take out a personal loan, be sure to consider as many lenders as possible to find the right loan for your needs. Credible makes this easy: You can compare your prequalified rates from our vetted partner lenders below in just two minutes — without affecting your credit.
|Lender||Fixed rates||Loan amounts||Min. credit score||Time to fund||Loan terms (years)|
|9.95% - 35.99% APR||$2,000 to $35,000**||550||As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)||2, 3, 4, 5*|
|7.99% - 15.19% APR||$10,000 to $50,000||740||Next business day||3, 4, 5, 6|
|8.99% - 35.99% APR||$5,000 to $50,000||600||As soon as 1 to 3 business days after successful verification||3, 5|
|6.99% - 24.99% APR||$2,500 to $35,000||660||As soon as the next business day after acceptance||3, 4, 5, 6, 7|
|7.99% - 35.99% APR||$2,000 to $36,500||600||As soon as the next business day||2, 3, 4, 5, 6|
|5.99% - 23.99% APR||$5,000 to $100,000||700||As soon as the same business day||2, 3, 4, 5, 6, 7
(up to 12 years for home improvement loans)
|18.0% - 35.99% APR||$1,500 to $20,000||None||As soon as 1 to 2 business days after approval||2, 3, 4, 5|
|6.99% - 35.99% APR||$2,000 to $50,000||640||As soon as one business day||2, 3, 4, 5|
|11.69% - 35.93% APR7||$1,000 to $20,000||560||Within one day, once approved9||3,5|
|8.49% - 35.97% APR||$1,000 to $50,000||600||Within a day of clearing necessary verifications||2, 3, 5, 6|
|5.4% - 35.99% APR4||$1,000 to $50,0005||580||As soon as 1 - 3 business days6||3, 5, or 7 years4|
Several apps are available that allow employed borrowers to access a portion of their paycheck early — typically with no interest and minimal fees. This could help tide you over until your next paycheck without trapping you in a debt cycle.
Borrow from family or friends
Asking for a loan from a loved one can be uncomfortable, but it’s usually a much better solution than relying on a predatory lender. Just be sure to pay back the loan within a reasonable amount of time so you don’t strain your relationships.
If you decide to take out a personal loan, remember to do your research so you can make sure the company you choose is trusted and reputable. Credible makes this easy — you can compare your prequalified rates from multiple vetted lenders that have your best interest in mind.
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About Rates and Terms: Rates for personal loans provided by lenders on the Credible platform range between 5.40%-35.99% APR with terms from 12 to 84 months. Rates presented include lender discounts for enrolling in autopay and loyalty programs, where applicable. Actual rates may be different from the rates advertised and/or shown and will be based on the lender’s eligibility criteria, which include factors such as credit score, loan amount, loan term, credit usage and history, and vary based on loan purpose. The lowest rates available typically require excellent credit, and for some lenders, may be reserved for specific loan purposes and/or shorter loan terms. The origination fee charged by the lenders on our platform ranges from 0% to 10%. Each lender has their own qualification criteria with respect to their autopay and loyalty discounts (e.g., some lenders require the borrower to elect autopay prior to loan funding in order to qualify for the autopay discount). All rates are determined by the lender and must be agreed upon between the borrower and the borrower’s chosen lender. For a loan of $10,000 with a three year repayment period, an interest rate of 7.99%, a $350 origination fee and an APR of 11.51%, the borrower will receive $9,650 at the time of loan funding and will make 36 monthly payments of $313.32. Assuming all on-time payments, and full performance of all terms and conditions of the loan contract and any discount programs enrolled in included in the APR/interest rate throughout the life of the loan, the borrower will pay a total of $11,279.43. As of March 12, 2019, none of the lenders on our platform require a down payment nor do they charge any prepayment penalties.