5 Common Signs of Predatory Lending

05/28/2022

With so many mortgage lending companies out there, you might be wondering how to find one that has your best interests in mind. It can be more difficult when predatory lenders use deceptive tactics and tricks to trap people into less-than-ideal financial situations.

5 Common Signs of Predatory Lending in Missouri, Arkansas, Illinois, and nearby areas

Look out for these five common signs and tactics predatory lenders use during the homebuying process.

1) Abnormally Inflated Interest Rates

Though not every home lender can issue low-interest rates, it doesn’t mean you should pay unfair rates. Predatory lenders tend to take advantage of those in less-than-ideal financial situations by charging higher than standard interest rates–sometimes in the triple digits–which it’s why it’s essential to read the agreement. *

In the meantime, keep searching for better terms, and take steps to improve your credit.

2) No Credit Check

While the idea of bypassing a credit check seems appealing, credible lenders will ask for information about your credit score, history, and any debt.

Predatory companies don’t ask for this information because they aren’t worried about you paying back the money–they’ll make money at your expense. Often, they’ll ask for a car title or home equity for collateral.

3) Loan Flips

Some homeowners refinance their homes to have the opportunity to get a better interest rate or lock their current one. However, when predatory lenders flip your loan, they’ll do so at an even higher rate.

To avoid this pitfall, dig into the terms and do the math to ensure you aren’t signing for something that will negatively affect your financial future.

4) A Rushed Contract

If a mortgage lender has your best interests in mind, they’ll take you through the terms and conditions so that both parties understand the legally binding contract. If they don’t allow you to ask questions and instead rush the process, they most likely have something to hide.

5) Blank Spaces

Blank spaces left in forms could be a way for predatory lenders to go back in and fill in new information. As a good rule-of-thumb, if you didn’t discuss it, don’t sign it. Even if you don’t think your lender left any blank spaces, obtaining a copy of the paperwork will cover you in the long run.

Your home is a big deal, so it’s essential to work with a trusted company that has your financial future and happiness as their top priorities. At USA Mortgage, we do everything we can to ensure your future is protected. If you’re ready to get started, connect with one of our USA mortgage lenders on our website.


FAQ: Identifying Predatory Lending Practices


What are the dangers of abnormally inflated interest rates from lenders?

Predatory lenders often target those in vulnerable financial situations by charging excessively high interest rates, sometimes outrageously so. It’s crucial for potential borrowers to scrutinize loan agreements for unusually high rates, as these can lead to unmanageable debt levels and financial distress. Comparing rates and working on improving credit scores can help avoid falling victim to such predatory tactics.

Why is a lack of credit check considered a red flag in lending?

While skipping a credit check might seem convenient, reputable lenders always assess credit histories to determine loan terms that both parties can reasonably manage. Predatory lenders skip this step not out of convenience but because their profits don’t depend on timely repayments; instead, they often make money through high fees and penalties imposed on financially strapped borrowers.

How can loan flipping become a predatory practice?

Loan flipping involves a lender persuading a borrower to repeatedly refinance their mortgage, often increasing the loan amount and interest rate each time. This practice can trap homeowners in a cycle of debt with worsening financial terms, significantly harming their financial stability over time. Homeowners should thoroughly understand the terms and long-term financial impacts before agreeing to refinance their mortgage.

What should be wary of in the contract process with lenders?

A rushed contract process is a significant red flag. Ethical lenders ensure borrowers fully understand the terms and conditions of their loan agreement and provide ample time for questions. Being pressured to sign quickly or encountering contracts with blank spaces that can be altered later are tactics used by predatory lenders to exploit borrowers, often leading to unfavorable terms not initially discussed.

USA Mortgage Abadi Region

USA Mortgage Abadi Region

A full-service mortgage lender with local branches in Missouri, Arkansas, Illinois, and nearby areas.