Question:

Can you give examples of predatory lending?

Answer:

Predatory lending is likely to happen to people with bad credit score who don't have much chance to be approved for a regular loan and are pressed to turn to sub-prime lenders. This is the niche where predatory lending is most likely to occur. Although some states have institutionalized predatory law as harmful and passed laws to protect potential homeowners, it is good to have an idea what most common examples of predatory lending are.

Sub-prime brokers are inclined to charge larger points and originating fees such as more than 10% of the loan, roll them into the loan and request excessive rates on the total. Even if later the loan is refinanced at a lower rate, those fees will be lost already.

Another example of predatory lending is the widely advertised bills consolidation. That is, a loan consolidating all your credit cards, car and education payments, etc. on one account with a single monthly payment. The payment may turn to be lower at the moment but the short-term debt will have been traded for a longer debt and the total accumulated interest payment will come a lot more. Not to mention that you'll be debt free in 30 instead of 3 years.

A misperceived balloon loan can also be a predatory lending example. The very low monthly payments will seem very convenient presented by the broker. However, when the balloon comes due and you cannot pay a lump sum or refinance you may face foreclosure and lose all equity gained on the house. Examples of predatory lending when the lender is luring the borrower into a loan expecting him to default with payments at a certain time constitute the so-called "equity stripping".

A repeated urge from your lender to refinance your loan any time you have paid some cash on it leads the borrower to owing far more than the property is initially worth. This predatory lending practice is called ‘flipping'.

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