As you can probably imagine from its name, predatory lending is an unfair way of lending money. Most people will have heard words like ‘loan shark’ used before and this is a good description of predatory lending. The people involved in this business can make a lot of money for themselves, but they can also make life very miserable for those who are unlucky enough to have borrowed money from them. This is not just something that happens in movies; people do end up with ruined lives because of this type of lending. Even in civilised place like the UK you will find plenty of people involved in this type of illegal business.
What is Predatory Lending?
Predatory lending refers to unfair demands on lenders in regards to how much they have to pay back on a loan. In most instances the borrower will have been tricked into paying an inflated interest rate that is much higher than they would pay with a reputable lender. In many cases the people will have turned to the loan shark because they just aren’t able to borrow money elsewhere. It is often the people who can least afford to pay back the inflated interest rates that find themselves in this position. It is suggested by the New Local Government Network (http://www.nlgn.org.uk/public/) that the recent economic crisis could mean that up to 200,000 people in the UK might be forced into borrowing money from predatory lenders. These lenders operate illegally but manage to keep under the radar by keeping people afraid to report them — using threats or sometimes actual physical violence. According to an article the Guardian (http://www.guardian.co.uk/money/2010/jan/15/loan-sharks-poorest-households) many of these borrowers will end up paying back up to three times the amount they originally borrowed.
How to Avoid Predatory Lending
Some people tend to turn to predatory lenders because they believe that there is no other option. A significant number fall into the trap because they just did not know what they were getting into in the first place. Doorstep lenders that are offering easy loans are people to avoid; these lenders tend to appear most at certain times of the year like just before Christmas. Getting the loan is easy but paying it back becomes a nightmare afterwards. These people are often smooth talkers who downplay the amount that needs to be paid back; in some instances they will outright lie. The only way to avoid this trap is to just refuse to borrow money this way.
In many cases those wishing to borrow money have more options than they might realise. Places like credit unions are a good place for getting loans. Getting a bank loan these days can be harder in the past, but if people approach traditional lenders appropriately they can increase their chances of getting a loan. The main thing is to explain to the lender why you need the money and exactly how you plan to pay it back. In some cases the best advice would be to manage somehow without the money rather than borrow from a loan shark.