Predatory loans are becoming a big issue in the financial world. Law makers are focusing on how to weed out predatory lenders and protect the public from their scams. To avoid a predatory loan you need to know what they are. You also need to be aware of the groups they normally target. Then you can be more likely to avoid these loan scams. Predatory loans can devastate a persons finances and have a bad effect on the economy.

Predatory lending is when lenders add unnecessary fees and excess expenses to a loan. These lenders advertise to those who have bad credit or might otherwise not qualify for a loan. They justify the extra fees because of the risk of lending to this category of people. They like to target people who already own a home, but have no money otherwise.

The process ends with the lender taking all the equity the person has built up in their home. Most often elderly, low income and minorities are the targets. These predatory loans cause people to be unable to pay and then leads to foreclosures.

The excessive fees charged are more than 5% of the total loan. There are other methods of adding excess costs to these types of loans. The following lists these other fees and tactics used by predatory lenders to take your money.

Abusive prepayment penalties - This is a fee that is charged when the loan is paid off early.

Unnecessary products - These include insurance or other items that are not necessary to get the actual loan.

Mandatory arbitration - This is a clause in the contract that takes away the borrowers rights to fight the lender in court.

Steering and targeting - This is where these types of lenders talk people into predatory loans when they actually could qualify for a traditional loan. These practices make predatory lenders stand out from your average lender. This is what makes them so dangerous.

Avoiding a predatory loan is a matter of knowing the facts about predatory lending. If you are in their target group then be very aware of anyone approaching you to get a loan. If you feel pressured at all do not accept their offers. Shop around when looking for a loan. Avoid loans with high fees. Check the lender out with the Better Business Bureau. Make sure you completely understand the terms of the loan.

Read everything before signing anything. Watch out for balloon payments, these are large payments at the end of a loan. You should avoid loans that are based only on the amount of assets you have and not based on your ability to pay back the loan - this is the biggest sign of a predatory loan. If you feel like they are not telling you everything or you do not understand something then it is best to walk away.

If you do end up being a victim of a predatory lender you can call a local consumer office or contact the Federal Trade Commission. You should also contact the Better Business bureau. Seek help immediately from a legal professional. You may have more rights under the law that you do not know about. Some state and federal regulations may be able to help you.

Predatory lenders are part of the new group who are trying to cash in on people's bad credit. With so many people having credit related issues, these lender are finding it easy to talk people into fast and easy money. Once you know what to look for in a predatory lender you can avoid the hassle and money troubles that come along with them.

About the Author: Alan Jason Smith is the owner of http://www.lplending.com which is a great place to find lending links, resources and articles. For more information go to: http://www.lplending.com

Source: www.isnare.com