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Personal Loans

What Is Predatory Lending? What You Need to Know

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Predatory lending occurs when a borrower is pushed (or tricked) into getting a loan with terms that are unclear or deliberately deceptive.

If you’ve ever felt pressured to take a loan where the terms weren’t what you expected, most likely you’ve had a brush with predatory lending. Maybe you also felt harassed — or even threatened — into signing a loan without fully understanding the terms, or before you were ready.

Any lender can engage in predatory lending, whether it’s for a mortgage, car purchase, home improvement loan or a similar borrowing situation. Here’s a guide to what you need to know about predatory lending: common warning signs, ways to fight back and some of the lending alternatives you might want to consider instead.

How does predatory lending work?

With a predatory loan, the loan is most often not what the lender initially described. For example, maybe you were promised a fixed-rate mortgage, as well as a long repayment term, for that new home. Instead, you’re handed an adjustable-rate mortgage — with a very short repayment term that makes it almost impossible to pay back without an expensive refinance that your lender offers to do too. If that happens, you’ve been subjected to a classic bait-and-switch move in predatory lending.

Some borrowers are especially vulnerable to this type of deceit. Elderly borrowers, for example, may have a lot of equity in their homes, but limited access to income or credit. Predatory lenders also prey on borrowers who need emergency cash to pay for unexpected medical bills, or home or auto repairs.

Taking out a payday loan often causes problems too. You might get your money quickly and with little fuss, perhaps at a storefront or online, but those loans almost always carry exorbitantly high interest rates.

Coronavirus: Beware predatory lending practices

In times of crisis, certain lenders may decide to take advantage of consumers who might be experiencing dire financial circumstances. The economic uncertainty caused by the new coronavirus pandemic is no exception, and U.S. lawmakers have already expressed concern about how financially vulnerable Americans may be as they face salary cuts, job losses and the prospect of an imminent recession.

If the pandemic has left you facing financial hardship, avoid using predatory loans to stay afloat. Instead, you may be able to access needed funds — as well as deferments on loan payments, like those that may be available for mortgages — from your bank or credit union. You might also be eligible for an Economic Impact Payment and other resources provided by the federal 2020 CARES Act. To learn more about this major piece of legislation, check this link from our parent company LendingTree.

Predatory lending practices: 8 warning signs

High interest rates and fees

High interest rates and fees are key signs of a predatory loan. If you’re applying for a loan and the interest rate or the loan and documentation fees seem high, ask your broker if they’ll be getting a yield-spread premium from the lender. This is a commission your lender may be paying the broker in exchange for offering an inflated interest rate.

Lack of information

If loan terms aren’t clear to you — or a lender can’t answer your borrowing questions directly — there’s a good chance you’re dealing with a predatory lender. Avoid signing on the dotted line if a lender can’t clearly tell you whether your interest rate (or any other terms) will change over the course of the loan, what fees will be included or if there are prepayment penalties.

False information

Predatory lenders often misrepresent loan terms or may even lie about them. Beware of loan terms that seem too good to be true; they most likely are. Language like “easy payment terms, “no payments for 90 days” or “easy credit” should raise red flags.

Pledges not to perform credit check

Lenders routinely perform credit checks before approving and issuing loans to ensure the borrower can afford to repay. If a lender tells you “no credit check required,” chances are that lender is going to require some form of collateral, possibly in the form of the title to your car or access to a bank account. It’s never a good idea to put other assets at risk for a loan you might not even be able to repay.

Unusual prepayment penalties

When you take out a loan, you generally have the option of either repaying the loan early or refinancing, usually without paying any penalties, or at least with very limited fees. A predatory loan, however, may include steep fees for prepayment and refinancing, and these fees can add up to thousands of dollars.

Doesn’t report to credit bureaus

One of the advantages of taking out any kind of loan is that it can help you build a solid credit history, assuming you make payments on time and your lender reports the loan to credit bureaus. Lenders are not legally required to report loans to bureaus — however, if your loan isn’t reported, it might be a sign your lender doesn’t necessarily have your best financial interests in mind.

Lender access to bank account required

Payday lenders, in particular, are likely to ask for bank account information before handing over a high-interest, short-term loan. If you allow access — and are economically vulnerable — you may get hit with overdraft charges if sufficient funds aren’t available to cover the loan.

Hidden balloon payments

Often, a predatory lender may convince a borrower their loan comes with low monthly payments. The borrower later learns those low rates applied only for a short period of time, and that they will “balloon” at the end of the life of the loan unless the borrower doesn’t refinance. If you’re constantly feeling pressured to refinance your loan, persistent “flipping” may be costing you plenty in unnecessary fees and points.

Anti-predatory lending: What are the protections?

Fortunately, there are legal protections in place to reduce the practice of predatory lending and help consumers fight back. Here are some of the laws that provide support and resources:

  • Equal Credit Opportunity Act (ECOA): This law protects consumers from lending discrimination due to age, gender, race or ethnicity. This law aims to rectify the denial of lending opportunities to minority borrowers, who may have encountered predatory lendering because of discrimination by more traditional lending institutions. If you think you’ve been discriminated against, report it to your state attorney general’s office.
  • Truth in Lending Act (TILA): This legislation requires lenders to clearly, accurately and fairly disclose credit and loan terms to borrowers. It also gives borrowers three days to back out of a potential loan without having to pay a financial penalty.
  • Home Ownership and Equity Protection Act (HOEPA): Lawmakers passed this law in 1994 with the specific goal of protecting borrowers from abusive home lending practices and high-cost mortgages, and further amended it in the years following its enactment. For borrowers getting high-cost mortgages, the act directs lenders to provide them with all necessary disclosures and loan terms, and encourages or requires homeownership counseling.

Most states also have laws designed to protect borrowers from predatory lending. These laws range from those that prevent payday loan companies from operating within the states, to caps on the interest rates the companies can charge. Illinois, for example, limits the interest rate that can be charged on payday loans to 15.5%.

To find more about what’s allowed in your state, visit this site from the National Conference of State Legislatures.

Alternatives to predatory lending

Some credit unions offer payday alternative loans, or PALs, to account holders with poor credit who need a short-term loan. A PAL usually offers more financial stability and less risk than a payday loan; for example, you can pay it back over a period of up to six months. PALs are regulated by the National Credit Union Administration, a federal agency. In order to apply for a PAL, you’ll need to belong to a federal credit union.

If you’re in a tight financial spot, you may be able to receive a payroll advance where you work. Many employers let employees borrow against upcoming paychecks to cover a critical, unexpected expense. In general, you can expect a payroll advance to be far less expensive what a payday loan might cost.

If you have either poor credit or no credit, you can still get a personal loan while steering clear of predatory lending practices. Credit unions, in particular, can be solid sources of personal loans for members who have poor credit, and even traditional lenders may be willing to provide a personal loan to someone with bad credit who also has a cosigner.

A credit card is basically a revolving line of credit you can use to borrow up to the credit limit set by the lender, depending on how much credit you have available and as long as you meet the required monthly minimum payments. Pick a credit card with the lowest interest rate you can get, or take advantage of the introductory 0% interest rates many lenders offer. Then, pay off your credit debt as quickly as possible.

It may feel awkward asking family or friends for a loan, but it may give you more flexible repayment terms. The biggest drawback: If you fail to pay back the loan or make timely payments, your relationship may suffer.

Low-income borrowers who want to avoid predatory lenders can contact the National Foundation for Credit Counseling (NFCC) for help with debt management, and to find a reputable nonprofit financial counselor within the foundation’s national network.

If you’re having trouble meeting financial obligations, tap your lender for potential options. For example, a credit card company might be willing to offer a lower monthly minimum payment or a lower interest rate.

FAQ: Predatory lending

Predatory lending occurs when lenders push (or trick) a borrower into getting a loan with terms that are unclear or deliberately deceptive. With any loan you should always feel comfortable with the terms, and the working relationship you have with your lender. If you don’t, it might be time to step back.

Balloon-type mortgages can be predatory if a lender misrepresents or doesn’t ensure a borrower understands payments will escalate over time. The Federal Trade Commission warns consumers to avoid car title loans, as they’re typically short-term loans that come with a triple-digit annual percentage rate (APR). Because the loans require borrowers to hand over the title to their automobile as collateral, you risk losing a much-needed possession.

Predatory student loans often feature excessively high interest rates. The current interest rate on a federal student loan ranges between 4.32% and 7.08%, so be careful if you spot a much higher rate. Student loans that have prepayment penalties or require a car or home as collateral might also be considered predatory.

Be on the lookout for automobile dealers who load up a loan with extra “junk” fees, like for service contracts, rustproofing and theft deterrents. Also look for loans that dealers finance in-house; they may come with an APR that’s far higher than what a bank or credit union might offer.

To get out of a predatory loan, try refinancing the loan with a reputable lender. Credit counselors, often working for free, may be able to help too; you could start by contacting the nonprofit Legal Services Corporation, or HUD, if you need housing help. In addition, the aforementioned NFCC says it will work with clients regardless of their financial situation; according to the organization’s website, “we don’t turn anyone away.”

If you think you’ve been a victim of predatory lending, report it to the Federal Trade Commission or to your state attorney general’s office. If the predatory lending involves a local home improvement contractor, contact the Better Business Bureau for guidance.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Emergency Loans: Personal Loans With Fast Funding

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

No one can predict the future, but you can have a plan in place if your car needs unexpected repairs or a costly medical bill hits you out of nowhere. Emergency loans — personal loans that typically take less time to process — can provide breathing room in the event you lose your job or experience a serious reduction in work hours and need some cash to tide you over.

4 emergency loans to kick-start your search

4 lenders for emergency loans

LightStream

Best Egg

Rocket Loans

OneMain Financial

APRs

3.49% - 19.99%

5.99% - 29.99%

7.16% - 29.99%

18.00% - 35.99%

Terms

24 to 144 months

36 or 60 months

36 or 60 months

24 to 60 months

Loan amount

$5,000 - $100,000

$2,000 - $35,000

$2,000 - $45,000

$1,500 - $20,000

Origination fee

No origination fee

0.99% - 6.99%

1.00% - 6.00% of loan amount

Depends on state, $30-$150 or 1.00% - 10.00%

Time to funding

Same day funding

1-3 business days

Same day funding

Same day funding

Credit score requirement

Not specified

640

640

Not specified

Are there emergency loans for bad credit?

While emergency loans and bad credit aren’t normally an ideal combination, there are options available for those who don’t have the best credit history but are in need of financial help.

Tough times can lead to tough questions like, “Can I qualify for emergency loans with bad credit?” The answer is usually yes, but the costs will be steep. Here are some emergency loans for bad credit to consider.

Emergency loans for bad credit

Avant

Upstart

LendingPoint

Upgrade

APRs

9.95% - 35.99%

8.13% - 35.99%

9.99%-35.99%

7.99% - 35.97%

Terms

24 to 60 months

36 or 60 months

24 to 48 months

36 or 60 months

Loan amount

$2,000
- $35,000

$1,000 - $50,000

$2,000 - $25,000

$1,000 - $35,000

Origination fee

Up to 4.75%

Up to 8.00%

0.00% - 6.00%

2.90% - 8.00%

Time to funding

1 business day

1 business day

1 business day

1 business day

Credit score requirement

600

600

585

620

Other ways to access emergency funds

  • Dip into savings: If you have an emergency fund, now may be the time to tap it. Pulling from savings allows you to avoid taking out debt for surprise expenses.
  • Ask friends or family for help: It may be an uncomfortable conversation, but if friends or family can help tide you over — and you can be trusted to repay what they lend you — you can get no-interest funds until you get back on your feet.
  • Charge your credit card: If bad credit or no income means you’ll be stuck with high interest rates, your credit card may be your best bet for accessing credit. However, make sure you have a clear plan for repayment; credit card debt can easily spiral out of control.
  • Find a payday alternative loan: Offered by select credit unions to members, PALs are small loans with a maximum $20 application fee and terms up to six months — and they may even be funded as soon as the next business day, too. PALs are an affordable alternative to payday loans, which can trap you in a debt cycle with extremely short repayment terms and high fees.

When an emergency loan can save the day

An emergency loan can help you stay afloat when financial hardship occurs. But carefully weigh your options before taking out debt. You don’t want to take on debt you can’t reasonably be expected to repay on time and in full, especially when your debtors may be willing to work with you.

Your car broke down. Even the most reliable car is likely to experience some type of mechanical issue or breakdown. With the average tab for a visit to the mechanic hovering between $500 and $600, you might find yourself struggling to foot the bill. An emergency loan allows you to get your car back on the road and you back to work.

You need an emergency home repair. Rainwater dripping on your carpet from a hole in the roof or a busted oven can be a serious drag on your life and wallet. An emergency loan can help you invest in your home and save money in the long run.

You have an unexpected medical bill. Whether you don’t have insurance or your insurance won’t cover the treatment you received, using an emergency loan can help. However, you should first seek out alternative options. For example, call your provider’s billing department and ask if they can offer a payment plan or reduce your bill.

You’re struggling with credit card debt. Taking out a loan when you’re already swimming in debt may seem like a bad move, but an emergency loan can help in certain situations. Consolidating your high interest debts into a new loan with a lower rate may help you save money, due to the lower interest costs or smaller monthly payment.

How to apply for an emergency loan

1. Gather personal information

On top of the basics like your name and address, you’ll also need information about your employer (if you have one) and your current income. Take your time and enter the information correctly to keep the process running smoothly.

2. Check your credit score

Find out what your credit score looks like before applying for the loan. You can get your credit report via AnnualCreditReport.com, and can also receive a free report every year from all of the major credit bureaus, including Equifax, Experian and Transunion.

3. Decide how much you can afford to borrow

There’s much more to a loan than just the monthly payment. Make sure to account for such costs as:

  • APR
  • Origination fees
  • Late fees
  • Check processing fees
  • Prepayment penalties

Review the total amount of the loan and monthly payments and ensure they’re compatible with your lifestyle and budget.

4. Research lenders and compare quotes

Settling on the first loan you come across could result in added expenses. Take the time to research lenders and compare quotes to get your best deal. In most cases, you can get a quote with a soft credit check. These quotes can reveal the types of terms you may qualify for, and help you find a lender with terms that work best for your financial situation.

For example, you might opt for a lender that has long repayment terms to minimize monthly payments. Although a longer term means you’ll pay more in interest over time, your payments would be more affordable while you manage your emergency and work to get back on your feet.

5. Apply for fast funding

Some lenders offer same-day turnaround, but you can most likely expect the money to enter your bank account within a few business days of loan approval. Having your information ready and doing your homework about different lenders can help to expedite the process.

FAQs: Emergency loans

Often lenders can take one to three business days, though there are others that can get you the money on the same day you apply.

Usually emergency loans range from $1,000 to $35,000. However, some lenders may offer to lend you more, while others could offer smaller loans worth as little as $500.

The short answer is yes. When you formally apply for an emergency loan, you’ll be subject to a hard credit inquiry; this may temporarily lower your credit score. However, an emergency loan contributes to your credit mix, which could be good for your credit. On-time payments on your loan can also improve your credit by building a healthy payment history.

Every loan and lender is different, but you can expect to pay off the loan in one to seven years. In addition, keep an eye out for prepayment penalties if you decide to pay off the loan early.

It all depends — most lenders determine your interest rate based on a variety of factors, including your credit history, annual income and current debt, among others. You can use this personal loan calculator to determine your long-term costs of repayment.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Get Personal Loan Offers
Up to $50,000

$

Won’t impact your credit score

Advertiser Disclosure

Personal Loans

Emergency Loans: Personal Loans With Fast Funding

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

No one can predict the future, but you can have a plan in place if your car needs unexpected repairs or a costly medical bill hits you out of nowhere. Emergency loans — personal loans that typically take less time to process — can provide breathing room in the event you lose your job or experience a serious reduction in work hours and need some cash to tide you over.

4 emergency loans to kick-start your search

4 lenders for emergency loans

LightStream

Best Egg

Rocket Loans

OneMain Financial

APRs

3.49% - 19.99%

5.99% - 29.99%

7.16% - 29.99%

18.00% - 35.99%

Terms

24 to 144 months

36 or 60 months

36 or 60 months

24 to 60 months

Loan amount

$5,000 - $100,000

$2,000 - $35,000

$2,000 - $45,000

$1,500 - $20,000

Origination fee

No origination fee

0.99% - 6.99%

1.00% - 6.00% of loan amount

Depends on state, $30-$150 or 1.00% - 10.00%

Time to funding

Same day funding

1-3 business days

Same day funding

Same day funding

Credit score requirement

Not specified

640

640

Not specified

Are there emergency loans for bad credit?

While emergency loans and bad credit aren’t normally an ideal combination, there are options available for those who don’t have the best credit history but are in need of financial help.

Tough times can lead to tough questions like, “Can I qualify for emergency loans with bad credit?” The answer is usually yes, but the costs will be steep. Here are some emergency loans for bad credit to consider.

Emergency loans for bad credit

Avant

Upstart

LendingPoint

Upgrade

APRs

9.95% - 35.99%

8.13% - 35.99%

9.99%-35.99%

7.99% - 35.97%

Terms

24 to 60 months

36 or 60 months

24 to 48 months

36 or 60 months

Loan amount

$2,000
- $35,000

$1,000 - $50,000

$2,000 - $25,000

$1,000 - $35,000

Origination fee

Up to 4.75%

Up to 8.00%

0.00% - 6.00%

2.90% - 8.00%

Time to funding

1 business day

1 business day

1 business day

1 business day

Credit score requirement

600

600

585

620

Other ways to access emergency funds

  • Dip into savings: If you have an emergency fund, now may be the time to tap it. Pulling from savings allows you to avoid taking out debt for surprise expenses.
  • Ask friends or family for help: It may be an uncomfortable conversation, but if friends or family can help tide you over — and you can be trusted to repay what they lend you — you can get no-interest funds until you get back on your feet.
  • Charge your credit card: If bad credit or no income means you’ll be stuck with high interest rates, your credit card may be your best bet for accessing credit. However, make sure you have a clear plan for repayment; credit card debt can easily spiral out of control.
  • Find a payday alternative loan: Offered by select credit unions to members, PALs are small loans with a maximum $20 application fee and terms up to six months — and they may even be funded as soon as the next business day, too. PALs are an affordable alternative to payday loans, which can trap you in a debt cycle with extremely short repayment terms and high fees.

When an emergency loan can save the day

Your car broke down. Even the most reliable car is likely to eventually experience some type of mechanical issue or breakdown. With the average tab for a visit to the mechanic hovering between $500 and $600, you might find yourself struggling to foot the bill. An emergency loan allows you to get your car back on the road and you back to work.

You need an emergency home repair. Rainwater dripping on your carpet from a hole in the roof or a busted oven can be a serious drag on your life and wallet. An emergency loan can help you invest in your home and save money in the long run.

You have an unexpected medical bill. Whether you don’t have insurance or your insurance won’t cover the treatment you received, using an emergency loan for an unexpected medical bill can help you pay for healthcare expenses and keep the bill from going to a collection agency.

You’re struggling with credit card debt. Taking out a loan when you’re already swimming in debt may seem like a bad move, but an emergency loan can help in certain situations. Consolidating your high interest debts into a new loan with a lower rate may help you save money, due to the lower interest costs or smaller monthly payment.

You’re missing something vital for a new job. Landing a new gig is exciting — until you realize your attire consists of sweats, flip flops and your favorite band T-shirt or sports jersey. An emergency loan can help you cover the cost of professional clothes, or anything else you might need for a new job.

How to apply for an emergency loan

1. Gather personal information

On top of the basics like your name and address, you’ll also need information about your employer (if you have one) and your current income. Take your time and enter the information correctly to keep the process running smoothly.

2. Check your credit score

Find out what your credit score looks like before applying for the loan. You can get your credit report via AnnualCreditReport.com, and can also receive a free report every year from all of the major credit bureaus, including Equifax, Experian and Transunion.

3. Decide how much you can afford to borrow

There’s much more to a loan than just the monthly payment. Make sure to account for such costs as:

  • APR
  • Origination fees
  • Late fees
  • Check processing fees
  • Prepayment penalties

Review the total amount of the loan and monthly payments and ensure they’re compatible with your lifestyle and budget.

4. Research lenders and compare quotes

Settling on the first loan you come across could result in added expenses. Take the time to research lenders and compare quotes to get the best deal. In most cases, you can get a quote with a soft credit check. These quotes can reveal the types of terms you may qualify for, and help you find a lender with terms that work best for your financial situation.

For example, you might opt for a lender that has long repayment terms to minimize monthly payments. Although a longer term means you’ll pay more in interest over time, your payments would be more affordable while you manage your emergency and work to get back on your feet.

5. Apply for fast funding

Some lenders offer same-day turnaround, but you can most likely expect the money to enter your bank account within a few business days of loan approval. Having your information ready and doing your homework about different lenders can help to expedite the process.

FAQs: Emergency loans

Often lenders can take one to three business days, though there are others that can get you the money on the same day you apply.

Usually emergency loans range from $1,000 to $35,000. However, some lenders may offer to lend you more, while others could offer smaller loans worth as little as $500.

The short answer is yes. When you formally apply for an emergency loan, you’ll be subject to a hard credit inquiry; this may temporarily lower your credit score. However, an emergency loan contributes to your credit mix, which could be good for your credit. On-time payments on your loan can also improve your credit by building a healthy payment history.

Every loan and lender is different, but you can expect to pay off the loan in one to seven years. In addition, keep an eye out for prepayment penalties if you decide to pay off the loan early.

It all depends — most lenders determine your interest rate based on a variety of factors, including your credit history, annual income and current debt, among others. You can use this personal loan calculator to determine your long-term costs of repayment.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Get Personal Loan Offers
Up to $50,000

$

Won’t impact your credit score