Chapter 1: What Are Payday Loans and Who Are the Predatory Lenders?

Predatory lending, simply put, is when lenders use deceptive practices and unreasonable terms to profit from borrowers in desperate need of funds. There are four main characteristics that define predatory lending:

  • Extremely high interest rates
  • Short repayment terms
  • Unnecessary additional fees
  • Failure to disclose important information about the loan.

But predatory lending is about more than just the lenders—it’s also about who they target. Because borrowers with good credit can find reasonable loan options, they are unlikely to accept the astronomical interest rates charged by predatory lenders. Instead, predatory lenders go after borrowers who have limited options. These borrowers typically have poor credit and limited cash reserves.

Predatory practices exist across all forms of lending and can be found in home mortgages and auto loans, among others. But there are some forms of lending that are simply predatory by nature. Payday, title and pawn shop loans all offer abrupt terms and high rates designed to take advantage of borrowers.

< previous | next >