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Unlike reputable personal loan lenders, who help bridge the gap when you have funding needs, predatory lenders trap borrowers in a debt cycle that can be extremely difficult to escape.
Predatory lending targets the uninformed and the overwhelmed. It’s a loan practice that often harms people who have nowhere else to turn for money.
These lenders use fraudulent charges, hidden fees, and deceptive practices to drain your bank account and leave you worse off than when you started. But you can dodge predatory lenders if you know what to watch out for.
In this post:
- Spotting a predatory lender
- Signs of a reputable lender
- Reporting a predatory lender
- Alternative loan options
How to spot a predatory lender
The expression “there’s no such thing as a free lunch” holds as true in lending as in anything else. In other words, if a lender promises easy money but won’t tell you what it costs, or withholds info about the interest rate and fees, watch out.
“Usually, this means they have hidden costs tucked away in the fine print,” said Daniel Joelson, a longtime lender in California who specializes in asset-based loans.
“Their goal is to advertise these rates, pushing people to get the loan, and then hit them with their otherwise unusually high hidden costs,” he said. “Usually, these loans are targeted toward people with a low credit rating.”
- Push you to borrow more than what you asked for
- Not ask about your existing debt or income
- Encourage repeat borrowing
- Require automatic payments as the only possible payment option
Here are a few more red flags to look out for:
Poor consumer reviews
If many borrowers post poor reviews of the service, complain about hidden fees, or mention how difficult the company is to work with, pay attention.
Too good to be true
If a loan sounds too good to be true, trust your instincts. This could mean the lender isn’t being straightforward with you about the credit score you actually need to get favorable terms.
Sometimes predatory lenders will advertise low rates or other perks, but fail to mention you need excellent credit to qualify.
No mention of APR or fees
The annual percentage rate (APR) is your way of calculating how expensive a loan will be. It shows you the actual annual cost, taking fees as well as interest into account. If a lender doesn’t disclose its APR or fees up front, you can’t know how much you will pay.
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.
High-risk secured lending
A secured loan is like extra insurance for the lender: If you don’t repay, they can collect your collateral, whether it’s your car, a house, or cash. But when you put these important assets down as security on an expensive loan, you risk losing them for good if you default — and that could leave you without reliable transportation or even homeless.
Balloon payments
Something to look for in the fine print: balloon payments. Predatory lenders use this tactic to offer “small monthly payments” while minimizing the fact that you’ll owe a huge amount at the end of the loan term. If you struggle to come up with the cash, you risk default (and a painful hit to your credit).
No credit check
Predatory lenders aren’t concerned with whether you can afford the payments. Sometimes, the loan is set up so the payments are withdrawn automatically. A reputable personal loan lender will check your credit history, because it wants to make sure you can repay your debt.
Loan flipping
Disreputable lenders may practice loan flipping, where they convince a borrower to refinance again and again, profiting off of the loan fees. Loan flipping can eat away at your finances while enriching the lender.
Prepayment penalties
Many reputable lenders have scrapped prepayment penalties, allowing you to pay off your loan early and save money on interest. A lender that charges you a prepayment penalty could make money off you even if you refinance, because refinancing pays off a loan in full.
Signs of a reputable lender
Unlike predatory lenders, reputable lenders conduct business in a fair, aboveboard way. They spell out what you can expect from them, and they look for the same from you.
Here are a few ways to spot a reputable lender.
- Clearly discloses rates and terms: A reputable lender will tell you upfront what the interest rate will be, how fast you’ll get your funds, and what fees you’ll be required to pay.
- Requires a credit check and income documentation: You’ll be asked to provide your personal information so the lender can run a credit check. You’ll likely also need to provide supporting documentation, such as pay stubs, that prove you earn what you say you earn.
- Has positive reviews: Fair, honest, positive reviews mean people like the service and are eager to share their experience.
- Offers financial tools and education to borrowers: Reputable lenders don’t want borrowers to take on more debt than they can handle. The best lenders provide their customers with calculators and other educational resources they need to be successful.
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.
Here’s an example of what a predatory lender will offer versus a reputable lender:
Say a predatory lender offers you a loan to get you to your next paycheck. The loan is $500 for 14 days, with a $25 loan origination fee and interest of $15 per $100 borrowed. You’ll wind up paying back $600 after those two weeks. That may sound reasonable until you discover the APR on that small loan is nearly 400%.
A reputable lender will charge a much lower APR. For instance, it may provide the same loan amount ($500), but give you longer to repay it, and not charge loan fees, either. At 15% interest and with no origination fee, a $500 loan repaid over one year carries an APR of 15%. Comparing 15% APR to 400% APR is no contest.
Use a personal loan calculator to compare interest rates and terms yourself.
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.
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How to report a predatory lender
You can help put a stop to predatory lending by reporting it to the authorities.
- Notify your state’s consumer affairs department
- Contact the attorney general of your state
- Report the lender to the Federal Trade Commission) by calling 1-877-FTC-HELP (382-4357) or filing a report online.
Alternative loan options to predatory lending
Even with poor credit, you may have other options that can provide better ways to get the cash you need.
Personal loan from a reputable lender
Look for a reputable personal loan lender instead. Doug Carey, a chartered financial analyst and president of WealthTrace, recommends asking friends and family for referrals.
“They may be able to recommend a lender they have used before and have had a positive experience with,” he said.
“Check to see if the lender is licensed and regulated by your state’s financial regulatory agency or by the Consumer Financial Protection Bureau,” he said. A reputable lender should be willing to provide clear and transparent details on the loan you’re considering, including their fees, interest rates, and terms of the loan.
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.
You can find and compare loan offers from our partner lenders below.
The personal loan companies in the table below compete for your business through Credible. You can request rates from all of these partner lenders by filling out just one form (instead of one form for each) and without affecting your credit score.
| Lender | Fixed rates | Loan amounts | Check rates |
|---|---|---|---|
Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 7.99% - 29.99% APR | $7,500 to $50,000 | |
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 9.95% - 35.99% APR | $2,000 to $35,000** | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 11.79% - 20.84% APR | $10,000 to $50,000 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 8.99% - 35.99% APR | $2,000 to $50,000 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 7.99% - 24.99% APR | $2,500 - $40,000 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 11.52% - 24.81% APR | $5,000 to $40,000 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 9.57% - 35.99% APR | $1,000 to $40,000 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 7.99% - 35.99% APR | $2,000 to $36,500 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 7.99% - 25.49% APR with autopay | $5,000 to $100,000 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 18.0% - 35.99% APR | $1,500 to $20,000 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 8.49% - 17.99% APR | $600 to $50,000 (depending on loan term) | |
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 9.99% - 35.99% APR | $3,500 to $40,000 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 8.99% - 25.81% APR10 | $5,000 to $100,000 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 11.69% - 35.99% APR7 | $1,000 to $20,000 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 8.49% - 35.99% APR | $1,000 to $50,000 | |
|
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Credible Rating
Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.
| 5.2% - 35.99% APR4 | $1,000 to $50,0005 | |
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Paycheck advance
Check in with your employer. Many companies offer ways for their employees to access their pay early when needed, in the form of a paycheck advance. 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.
Keep in mind that a paycheck advance should generally only be used in an emergency situation such as a large unexpected expense. Because the employee is borrowing money from the next payday, advances should be used sparingly and with caution.
Contact your Human Resources department or benefits manager to see if this is an option.
Borrow from family or friends
Sometimes, family and friends are more than willing to be your safety net. To preserve your relationship, get the terms of the loan in writing — and make sure you pay them back on time.
Credible makes it easy to find the right loan for you.
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Checking rates won’t affect your credit
Learn More: How to Get a Personal Loan
Emily Guy Birkin has contributed to the reporting of this article
