by Christy Bieber | Updated July 21, 2021 - First published on Aug. 25, 2019
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Find out what predatory loans are and how to make sure you don’t take one out.Image source: Getty Images.
Many people have to borrow money at some point in their lives to fund big purchases, buy a house, or go to college. Sometimes borrowing money can even help you improve your financial situation.
But not all loans help borrowers accomplish their goals. Some loans are predatory and can do serious financial damage. Predatory lenders mislead borrowers. They lock people into financing under terms they don’t expect or understand.
A predatory loan can cost you a fortune and ruin your credit in the process. It’s important to understand how predatory loans work and what red flags to look out for. Here are some tips to make sure you don’t accidentally take out this type of loan.
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Any type of loan can be predatory, including a mortgage loan, personal loan, or auto loan. What all predatory loans have in common is that they mislead borrowers.
Lenders may be dishonest about the costs and fees associated with the loan by hiding details in the fine print. Or they could make loans to people who have no business borrowing -- often in the knowledge that the borrower will default on the loan.
Predatory lenders target those who are desperate to borrow money or who don’t understand how borrowing works. These loans are often heavily advertised. They could be sold door-to-door or via mail, phone, TV, or online advertising.
Here are some common examples of predatory loans:
Any of these types of loan could hurt your credit, cost you a bunch of money paying back an unaffordable debt, and make your financial life harder, both now and later.
You don’t ever want to take out a predatory loan. Fortunately, there are some things you can do to avoid falling prey to unscrupulous lenders. Here are some ways to avoid predatory loans:
Borrowing from a predatory lender is always a bad idea. If you need to borrow money, make sure you research your options carefully and choose a lender that's up front about costs and fees. The potential to ruin your credit score -- or face expensive and unexpected costs -- means predatory loans are never worth taking.
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