predatory lending
Unfair or deceptive loan practices that exploit borrowers through excessive fees and high interest rates.
Example
“The payday loan turned out to be predatory lending with an effective annual rate of 400%.”
Memory Tip
PREDATORY — designed to trap and exploit, not to help.
Why It Matters
Understanding predatory lending helps you recognize when a lender is taking advantage of you rather than offering a fair deal. Protecting yourself from these practices is crucial because falling victim can trap you in cycles of debt that become increasingly difficult to escape, damaging your financial future and credit score.
Common Misconception
Many people believe predatory lending only happens with obvious scams or unknown lenders, but it can occur with established companies using legal but exploitative tactics. The key issue is not always whether a lender is licensed, but whether their terms are deliberately designed to trap borrowers rather than help them.
In Practice
Consider a borrower who takes a payday loan for $500 with a two-week repayment period and a $75 fee, which equals an annual interest rate of nearly 400 percent. When they cannot repay in two weeks, the lender rolls over the loan with another $75 fee, and within a few months the borrower has paid $300 in fees alone while still owing the original $500.
Etymology
From Latin 'praedatorius' meaning plundering — lenders preying on vulnerable borrowers.
Common Misspellings
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Related Terms
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See Also
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