How-to-Guide: Avoiding (or Breaking Free From) Predatory Lending
Predatory lending isn’t always easy to spot, and if you’ve already found yourself stuck in a high-interest loan, you’re not alone. This guide will help you recognize the warning signs and provide steps to escape if you’re already caught in the cycle.
What Is Predatory Lending? Predatory lenders use unfair, deceptive, or abusive tactics to trap borrowers in loans that are often high-cost and nearly impossible to repay. Common examples include:
- Payday loans
- Title loans
- High-interest installment loans
- Rent-to-Own or Buy-Here, Pay-Here loans
- Loans with hidden fees or balloon payments
Who do they Target? These loans often target vulnerable borrowers — including people with low income, bad credit, or urgent financial needs. Payday lenders generally target people who need fast cash or those who may think that no one else will help them.
Understand the Red Flags. Before signing a loan agreement, watch for:
- Sky-high interest rates (often 300% APR or more)
- Pressure to act fast or skip reading the fine print
- Promises of "guaranteed approval" regardless of your credit
- No clear explanation of fees or total repayment cost
- Unlicensed lenders operating online or out of small storefronts
Pro tip: Always ask, “What is the APR?” and “What will this loan cost me in total?”
How to Avoid Predatory Lending
- Shop Around First - Compare loans from credit unions, community banks, and reputable online lenders. If you’re a credit union member, you likely have access to:
- Lower rates (CSE will never charge anyone more than 18%, compared to some that might never be lower than 18%)
- Personalized financial counseling
- Use tools like the APR calculator at consumerfinance.gov to estimate the true cost.
- CSE has a variety of financial calculators to use.
- Check the Lender’s Credentials. Make sure the lender is:
- Licensed in your state
- Transparent about terms and fees
- Registered with the CFPB (Consumer Financial Protection Bureau) or your state attorney general’s office
How to Get Out from Under Predatory Loans
If you already have a predatory loan, there are ways out. It may take a few steps, but it’s possible — and worth it.
- Don’t Roll It Over - Many predatory loans encourage rollovers — where you pay only the interest and extend the loan. This creates a never-ending cycle of debt. Stop the cycle by avoiding any rollovers.
- Get Help from a Financial Counselor - A certified credit counselor or financial coach can:
- Review your loan documents
- Create a debt management plan
Tip: Here at CSE we have a Certified Credit Union Financial Counselor for when you need support. Or visit nfcc.org to find another certified counselor.
- Consolidate or Refinance
- Look into refinancing your high-interest loan(s) or debt(s) into:
- A lower-interest personal loan from your credit union or bank. This might allow you to extend the repayment period to keep payments more manageable.
- A 0% balance transfer credit card (if your credit allows)
- A debt consolidation loan that brings everything into one manageable payment
Predatory loans thrive on stress, speed, and silence. The best defense is education, support, and a plan. Before taking a loan, know your rights and review the terms carefully. If you already have one, seek help, avoid rollovers, and explore safer solutions.
You deserve better than burdensome payday loans and there are better options out there. Explore community-based institutions like credit unions, which are built to help, not profit off your struggle.
Need a Helping Hand?
If you're feeling overwhelmed or unsure where to start, at CSE we offer free financial counseling and low-cost refinancing options. Don’t hesitate to ask — the right support could help you break free for good.
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