Predatory lending can take on different tactics, but simply put, it is any loan that is not in the best interest of the consumer. Predatory lenders take advantage of consumers by charging excessive fees, using deceptive practices and burdening consumers with debt they will never be able to repay. Because these lenders try to appeal to consumers who are new homebuyers or have credit problems, it’s important to learn what predatory lending looks like and how to protect yourself.

First you need to understand the difference between prime (A) and sub-prime (B/C) loans. Prime loans are the conventional loans you would get from a bank. They also include FHA, VA and USDA-RD loans. Prime loans are for individuals with good credit who have the ability to repay the loan. Sub-prime loans allow lenders to loan money to those who pose a greater risk of not being able to repay the loan. Not all sub-prime lenders are bad. Some provide a good service to individuals who would not qualify for an A loan. However, predatory lenders target those who probably won’t be able to repay their loans with high fees and interest rates. This allows the lender to “steal” the equity you have put into your home. These borrowers run a high risk of foreclosure.

Predatory lenders tend to target certain types of borrowers. The targets include homeowners who have bad credit, lack financial management skills or need cash because of a financial crisis. Elderly, low-income or minority homeowners are also at risk.

Predatory lenders cause serious problems for individuals and communities. Memphis ranks highest in the nation for the number of bankruptcies and in the top five for foreclosures. This leaves neighborhoods with abandoned and boarded up homes. It creates an unsafe community. It’s important that you do what you can to protect yourself.

Click here to continue reading about the warning signs of predatory lending.