Predatory Lending – Definition

Cite this article as:"Predatory Lending – Definition," in The Business Professor, updated September 19, 2019, last accessed August 12, 2020, https://thebusinessprofessor.com/lesson/predatory-lending-definition/.

Back to: BANKING, LENDING, & CREDIT INDUSTRY

Predatory Lending Definition

Predatory lending involves immoral activities that a lender carries out to coerce, influence, and push a borrower for a loan that has excessive fees, and interest rates. It affects the credit rating of a borrower, and takes away all equity-based benefits from him or her. In order to deceive or cheat the borrowers, such predatory lending policies can be often seen in markets.

A Little More on What is Predatory Lending

There are many provinces that have created special anti-predatory lending laws in order to safeguard the interest of borrowers. This helps loan-seeking individuals to beware of such misleading type of lending. Also, as borrowers are getting more literate in financial terms, it helps them in identifying warning signs, and ignoring doubtful lenders. The U.S. Department of Housing and Urban Development (HUD) is also actively making policies for minimizing predatory lending.

Predatory lending vs Redlining

Redlining refers to an immortal practice that makes financial or other services inaccessible for individuals belonging to a specific race, area or creed. This concept is different from predatory lending. Redlining is prominent in systematic rejection of loans, insurances, mortgages, and other financial provisions on the basis of location, and the related historical background. The qualifications and credit rating of an individual don’t matter. Usually, people belonging to minority communities fall prey to redlining.

Predatory lending primarily offers advantage to the lending party, and prevents borrower or debtor to make repayment of the loan. Such lending strategies target individuals or prospective borrowers who are not familiar with loans, or lack financial literacy.

The basic form of predatory lending revolves around home loans. As the borrower has to keep his or her property as security, the lender not only benefits from terms and conditions of loans created for his or her own favor, but also from the borrower’s property, in case of failing to repay.

In the world of handy gigs, there are many types of predatory lending taking place every now and then. For example, Uber received a warning from court for influencing its drivers to purchase a car on unreasonable credit policies, thereby making them fall for predatory lending.

References for “Predatory Lending

https://www.debt.org/credit/predatory-lending/

https://en.wikipedia.org/wiki/Predatory_lending

https://loans.usnews.com/what-is-a-predatory-loan

https://www.nerdwallet.com/blog/loans/what-is-predatory-lending/

https://definitions.uslegal.com/p/predatory-lending-practices/

https://www.investopedia.com › Investing › Financial Analysis

Was this article helpful?