How to Protect Yourself From Payday Loans & Predatory Lenders
Everyone needs money to live. It’s a fact of modern life: If you want to provide for yourself and your family, you’re going to need an income to get by.
If money is tight, then you’re likely using all of your paycheck to pay for the basics like rent, food and transportation. So, what happens when a surprise expense like a sudden car repair or medical bill pops up and your income isn’t enough to cover both the unexpected and your essentials?
In these situations, it may be necessary to borrow money.
But, like all financial decisions, borrowing can be done the right way and the wrong way. Do your homework and make sure that you’re not only taking out a safe financial product that you can afford to repay, but also that you’re not borrowing from a predatory lender out to take advantage of you.
So, who are these predatory lenders? And how do they operate?
A predatory lender is anyone who practices unfair, abusive or deceptive tactics to trap borrowers in cycles of debt and squeeze them for all they have.
Over the past two decades, predatory lending has exploded in the U.S. and around the world.
Because they’re so prominent, they might seem like an easy option for borrowers in need of a short-term personal loan to cover unexpected expenses. But payday loans—along with other predatory personal loans like title loans and pawn shops—are called “predatory” for a reason.
“One type of predatory lender—payday lenders—have grown so rapidly that there are now more of them in the U.S. than McDonald’s and Starbucks locations.”
Predatory lenders charge astronomical interest rates and set unreasonable repayment deadlines that take advantage of vulnerable borrowers.
So why do borrowers choose these kinds of loans? In some cases, the lender might have used deceptive practices to make a bad loan sound good to an inexperienced borrower. In other cases, the borrower may have been turned away from more reputable lenders and believe there are no other options available.
But borrowers do have options. And even those who are locked into a predatory loan can take steps to dodge their most common traps.
1. Learn to spot and avoid predatory loans.
The best way to avoid the damaging financial consequences of predatory loans is to stay away from them altogether. To help you do this, Chapter 1 of this OppLoans e-book provides an overview of what constitutes predatory lending and identifies the three main types of predatory loans and details the dangers they present.
2. Recognize the traps within predatory loans.
Predatory loans are inherently stacked against the borrower, but you can avoid the most severe financial consequences if you learn to recognize them. Chapter 2 details two common pitfalls—debt cycles and rollover—so that you can make sure not to fall victim to them.
3. Find alternatives to predatory loans.
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Table of Contents:
- How to Protect Yourself from Payday Loans and Predatory Lenders
- Chapter 1: What Are Payday Loans and Who Are the Predatory Lenders?
- Chapter 2: The Predatory Effect of Payday Loans
- Chapter 3: Safer Borrowing
- Works Cited