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Cautioning Low-Income Individuals against Predatory Lending

By Ruth Racey
Published: Sunday, September 25th, 2011

The long and agonizing debate over high-risk lending is a continuing process of arguing—and only God knows when it will stop. High-risk lending does give people with bad credit another chance, same with people with limited income.

Supporters of this kind of lending practice place laurels on the head of lenders who are brave enough to take the risk of giving poor people the loan they need when nobody else in the trade would have done the same. But critics of the practice say that this is a ploy to rake in more money from the financially disadvantaged sector, particularly because of the predatory lending practices of these high-risk lenders. Nevertheless, both can’t claim a universal truth.

Predatory lending may be in the form of HELOCs, home or car mortgages, payday loans, credit card loans, loan sharking, or secured loan services. Almost all loan choices can become a field of predatory lending, especially is individuals approach disreputable loan companies who offer low interest rates at face value—but indeed has hidden charges that make the monthly payment higher than conventional loans.

One way of tracking down these predatory lenders is to monitor the working class and low-income earners. They are the ones typically victimized by these lenders because they have fewer options to choose from considering that their monthly income is barely enough to tide them over until the next pay comes. But of course, not all low-income individuals get victimized by predatory lending. They will surely weed out those who do not have valuable properties which they hope to get access to through sealing a mortgage deal and hoping to foreclose on it someday, after the borrower defaults.

One common characteristic of predatory lending is the high interest rate that they add up to the value borrowed. Because of the limited financial resources, people who apply for payday loans will find it hard to repay the original debt plus the additional surcharge and interest rates. Once the paycheck is received, the debt is repaid to avoid surcharges. But then again, nothing else is left to the person, so he decides to apply for another loan, which will then be paid the next month. It will follow a cyclic pattern which makes it impossible for the person to get rid of indebtedness without divine intervention.

The debt cycle is a ploy done by many lenders who abuse the susceptibility of the poor to high-interest offers. Apparently, these people have very limited choices and can do nothing more than to agree to the lender’s conditions.

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