Define: Predatory Lending

Predatory lending refers to unethical or exploitative lending practices that target vulnerable borrowers with deceptive or unfair loan terms and conditions. Predatory lenders often take advantage of borrowers’ financial distress, lack of understanding about loan terms, or limited access to traditional credit options. Common predatory lending practices include charging exorbitant interest rates, imposing excessive fees and penalties, steering borrowers into high-risk loans they cannot afford, and engaging in deceptive or misleading advertising and marketing tactics. Predatory lending can lead to financial hardship, foreclosure, and long-term debt for borrowers, while benefiting lenders who prioritise profit over the well-being of borrowers. Governments and regulatory agencies have implemented measures to combat predatory lending, such as enacting laws and regulations to protect consumers, promoting financial literacy, and increasing oversight of lending practices in the financial industry.

Predatory lending refers to practices used by certain lenders do to give out loans. With predatory lending, a lender attempts to deceive borrowers by giving them a loan they will most likely not be able to repay. Predatory lending includes tactics such unusually high and hidden fees. Although anybody can be a victim of predatory lending, predatory lenders attempt to target borrowers that will have difficulties understanding complicated terms and conditions, therefore making it easier to deceive them. Lenders benefit from predatory lending by repossessing and then reselling goods put by borrowers as collateral or by collecting on high hidden fees included as part of the loan. Predatory lending can result in foreclosure or significant loss of equity in the case of a mortgage loan. Depending on the situation, predatory lending is not always illegal but many states and agencies have taken actions to inform borrowers about predatory lending to help them recognize and avoid predatory lending tactics.

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This glossary post was last updated: 29th March, 2024.