Tough financial times are known to bring out the worst in people. People often resort to desperate measures in desperate times and take on more risks than they can reasonably manage. Nowhere has this been more evident than in lending and borrowing.
Understandably, people seek relief in cash-crunch situations, but lenders don’t seem to mind exploiting an already vulnerable borrower. As a result, it becomes crucial to be aware of the loan sharks disguised in sheep’s clothing.
Financial authorities have already warned against exploitative lenders and for borrowers to be more vigilant. As a borrower, you have to be wary of the fine print wrapped in legal jargon.
It often disguises hidden costs & high penalties in ambiguous language, which can confuse even the best of us. Misleading advertisements, another commonly used marketing ploy by lenders, are a potential minefield that can trap you in a regrettable debt cycle.
Here are a few ways you can protect yourself as you navigate through the murky financial waters of the credit world.
Read The Fine Print
Lenders employ a wide variety of tactics to hide additional costs like origination fees, credit insurance, high penalties for late payment, etc. Aside from already taking a high-interest credit loan, as a borrower, you also end up paying for these. Because they’re often written in legal language and can be confusing for you, your best bet is to read the fine print. Sit with an online glossary of legal terminology if you have to. When in doubt, ask your lender to clarify.
Sometimes, it’s a matter of spending a little extra time & doing your due diligence. For example, prepayment fees are not part of every loan. Prepayment fee clauses are cleverly hidden in loan contracts and are included as a retainer, cash advance or stake. You can look around for better loan options that do not have prepayment fees to avoid raising the true cost of your loan.
High-interest Credit Loans
High-interest loans are the hallmark of predatory lending. This is most commonly the case with personal loans. People use personal loans for a variety of reasons. It could be for debt consolidation, funding for college, hospitalisation, or any other type of emergency expense. Taking a personal loan can be overwhelming; coupled with high interest rates, these can feel rather burdensome in an already stressful situation.
Most lenders DO NOT give personal loans at the advertised rates; these are often subject to a borrower’s credit score or credit history. One way of tackling this challenge is to look for alternatives. Credit unions & non-profit lenders often offer low-interest credit loans with no hidden fees.
If you have bad credit, you could also consider taking payday loans from direct lenders to avoid unnecessary middlemen & gain access to funds quickly. Direct lenders have the added advantage of being able to offer you unsecured loans where they can customise their loan terms to suit your individual needs.
Borrow Only What You Need
Some lenders offer you more credit than what you need when you apply for a loan. While this may seem like a generous offer, it is often a dubious scheme to trap you with unnecessary debt. Most lenders set borrowing limits based on your credit score or credit history. It helps them give you suitable loan options well within their means.
The logic is that lenders are trying to limit their risks for default payments. However, when this logic isn’t followed, you have every reason to examine the terms & conditions of the loan more closely, or better yet, find another lender! You could avoid incurring additional debts if you can stick to your borrowing limit. It’d help you cultivate financial prudence in the long run while also improving your credit scores. The bottom line is don’t borrow what you can’t repay.
Conclusion
The financial woes of the current economic climate are bad enough. It shouldn’t have to become another reason for the exploitation of those vulnerable. People struggling with debt have every right to seek relief through accessible credit. Taking a loan comes with great risk as is. The last thing any borrower wants is to deal with loan sharks. The financially unsavvy are easy prey for lenders. While it is always recommended to do your due diligence while borrowing, it becomes even more important in financially challenging times.
The Financial Regulatory Authority (FCA) has taken cognisance of the issue of exploitative lending practices and has introduced changes to protect borrowers. It is hoped that these new rules can help borrowers access credit at reasonable interest rates with full transparency from lenders.
We hope this article has helped you get a better idea of how you can protect yourself from exploitative lending practices. All lenders may not be loan sharks, but some of them most definitely are. Do your due diligence and stay informed.
