Predatory Lending: An Australian Business’s Guide
Whether you’ve heard of this term on the news, talked about it with a friend or read about it online, there’s no doubt that predatory lending raises much concern and intrigue. As borrowing experiences in Australia (and the lending industry, as a whole) grow even more common, the topic in question becomes more frequently mentioned over time.
Given the fact that lenders have not wasted any time on putting out many promotions, deals, and discounts, most borrowers end up moving in quickly to cash in on available deals. However, the problem with this is that they end up jumping into the process without being well-aware that they’re at a much greater risk of experiencing predatory lending.
If you want to take out a specific amount to fulfil any need (or even want) that you have, then it’s best to understand the issue in question so that you avoid experiencing it. To best ensure that you don’t end up sacrificing your financial security because of ulterior motives, here’s a guide to all that you need to know:
What does predatory lending mean?
Predatory lending is a scheme or situation wherein a lender leverages a borrower’s circumstance to their own financial benefit or advantage.
By using cunning tactics that involve enticing, inducing, assisting, encouraging, and even misrepresenting, predatory lender’s main motive is to ensure that a borrower signs up for a loan that they can’t reasonably repay. From all of this, the lending party or agent ends up making money through the number of sign-ups, bonuses, and commissions, all without consideration of the repercussions.
Who is at risk of predatory lending?
Often, those who practice predatory lending—regardless of the scale of their operations—will go after the most vulnerable demographics that are more likely to fall for overpromising spiels.
When we talk about vulnerability, we’re referring to people with low credit scores (subprime borrowers), elderly persons, low-income families, and those facing financial distress. Once people who fall under these demographics believe a predatory lender’s tactics, the latter will begin to make money through undisclosed factors, such as high fees, kickbacks, and sign-ups.
What are the signs of predatory lending?
Generally, predatory lenders begin to roll out their spiels after they confirm that they can place you in a position of financial distress after gauging your situation. Whether you’re getting a loan that has high penalty rates, hidden seizure policies, or high fees for late repayments, it’s essential to watch out for specific offers that are harmful above all else.
Let’s look as some of the most common characteristics of predatory loans:
- High penalties for paying a loan out early that prohibit you from refinancing or closing the loan (which often lasts for several years)
- Inflated interest rates from brokers, which comes about because some lenders incentivise brokers to charge above the usual interest with a “yield-spread-premium”
- Adjustable interest rates that only go up, because continual rate rises, meaning that you never get on top of repayments
- Hidden charges that unscrupulous lenders use to make their loans sound more appealing, something that is often done by downplaying or hiding fees, charges and taxes
- Balloon payments, or large chunks of the loan that you are required to repay at intervals for the loan’s duration
If you get to distinguish any of these signs when going over a loan that is offered, you must turn away and warn your family and friends about it. Once you’ve spotted the key signs mentioned above, you can make up for the lost time by getting in touch with Business Loan Experts to help you find a non-predatory option that best suits your needs!
In today’s ever-growing financial landscape, borrowers must keep an eye out for any factors or potential issues that may hamper their experiences because predatory loans are now common. Through this guide’s help, you can come prepared to keep yourself, your family members, and your friends safe from this growing problem in the Australian lending industry!
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