The coronavirus pandemic has resulted in the temporary closures of many restaurants, schools, travel destinations and other gathering places. Because of this, many people may struggle to make ends meet. In times of high unemployment, predatory lenders take advantage of the helpless situations that people find themselves in.
Predatory lending refers to a lender that imposes unfair practices on borrowers, which are often accompanied by high interest rates and short repayment terms. In late March 2020, the Federal Reserve and Consumer Financial Protection Bureau (CFPB), among other financial entities, encouraged banks to issue small loans to Americans who are struggling. The announcement was met with criticism, since the Fed didn’t put any protective measures in place when urging banks to issue these small loans.
One type of predatory lending, payday lending, has already faced scrutiny amid the coronavirus pandemic. Payday lending refers to a type of short-term loan that requires no credit check and can help tide people over with small amounts of money, typically $500 or less. However, these loans have sky-high interest rates — typically around 400%, according to the CFPB.
Since the coronavirus pandemic began, payday lenders were able to sidestep regulations banning them from advertising on Google and Facebook by partnering with out-of-state banks, a report from the Wall Street Journal found. To make sure you don’t fall victim to predatory lending, look out for these red flags:
- Fees and very high interest rates, that can range into the triple-digits.
- Short repayment terms, which may be as little as two weeks, in the case of payday loans.
- No credit check required, since financial institutions rely on your credit score to determine eligibility.
Before you turn to a payday loan or another type of predatory lending, consider the alternatives, such as small personal loans, credit cards with favorable terms or even borrowing from friends and family. Plus, the LendingTree coronavirus hubpage has plenty of resources for people who can’t pay their debts.