Finding yourself in financial difficulty is a horrible place to be. Feeling vulnerable and lacking hope, you might have found yourself reaching out for a loan that sounds too good to be true. Lenders are often so willing to help that they brush off your questions and concerns and chase you till you sign on the dotted line. Only once the paperwork has been done do you realise you cannot possibly repay the loan in the terms provided. You may have fallen victim to predatory lending.
What does predatory lending mean? Predatory lending is where a lender leverages the borrower’s circumstances for their own financial benefit. They do this by enticing, inducing and assisting the borrower to sign up for a loan they cannot reasonably repay. They then make money through increased sign-ups, kickbacks and high fees. Predatory lenders tend to seek out the elderly, low-income families, subprime borrowers (people with low credit scores) and those in financial distress.
Taking advantage of vulnerable clients is illegal and regulated by ASIC. Chapter 3 of the National Consumer Credit Protection Act 2009 states that: “Credit licensees must comply with the responsible lending conduct obligations”.
What Are Some Examples Of Predatory Lending?
A lender or broker who looks at your assets more than your ability to repay a loan can be considered predatory. They are knowingly placing you in a position of financial distress. High fees leveraged for late repayments, penalty interest rates or seizure of assets can all be considered predatory. Even pushing “essential services” that are not actually required can be deemed predatory and are illegal. This includes insurances linked to credit cards.
Characteristics Of A Predatory Loan
Unsure if you are trapped in a predatory loan, or if you have potentially been offered one? What does predatory lending mean and what does it look like? Below are some key check-points to look out for.
- High penalties for paying a loan out early. Prohibiting you from refinancing or closing the loan, sometimes for a period of many years.
- Inflated interest rates from brokers. Some lenders incentivise brokers to charge above the usual interest with what they call a ‘yield-spread-premium’. Ask your broker if the lender is offering this to them.
- Adjustable interest rates that only go up. Continual rate rises that can mean you never get on top of repayments.
- Steering and targeting. Broker or lenders who contact you to offer credit and loans, brush aside your low credit rating or try to rush and coerce you into signing.
- Hidden charges. Unscrupulous lenders make their loans sound more appealing by downplaying or hiding fees, charges and taxes.
- Offers to ‘flip’ your loan. Refinancing repeatedly damages your credit rating and can end up costing thousands in fees and charges.
- Future promises. Lenders who sell you a poor loan product but promise to ‘fix’ any issues down the line.
- Balloon payments. Large chunks of the loan that you are required to repay at intervals for the life of the loan.
What Does Predatory Lending Mean For You?
If you feel that you are a victim of predatory lending there are steps you can take to get help.
- Report the lender. Contact the Australian Financial Complaints Authority (AFCA)
- Refinance via a licensed broker or bank. There are a number of reputable, trusted lenders who can help to refinance your loan for you and turn your negative financial situation around. Australian Lending Centre is dedicated to finding loan products which suit our client’s individual needs.
- Sue the lender. In some instances, you may find there are other victims of the lender who are willing to join you in a class-action suit. Placing more pressure on the lender.
- Implement the act of rescission. Whereby you can exit the contract by demonstrating it was offered under misrepresentation or concealment.
How To Avoid Predatory Lending
Always shop around and only deal with licensed brokers. It is also important to read reviews on lenders from current and past borrowers. Choose only a reputable lender. You should also ensure you read your contracts thoroughly prior to signing and query anything you do not understand. Engage the help of a solicitor if necessary so that if you do not understand what does predatory lending mean, they can check and advise for you. Additionally, keep your credit score up so that you have more borrowing power.
Being an educated consumer places you in a position of power and much harder to be taken advantage of. Ultimately, if something doesn’t feel right, be confident in your right to say ‘no’ and walk away. You do not owe anything to the broker, they are working for you.
Know Your Rights And Shop Around
Understanding ‘what does predatory lending mean?’ prior to taking out a loan can save you from falling victim to such a loan. Learn to manage financial challenges and avoid predatory lending. If you do need a loan, even if to consolidate existing debt, only deal with a licensed professional. At the Australian Lending Centre, our commitment is to helping you. From debt consolidation, debt relief, bad credit loans and more – we find solutions to get you back on the path to financial security. We will never take advantage of your situation.