What does the term "predatory lending" refer to?

The term "predatory lending" refers to lending practices that deceive or exploit borrowers. This type of lending often involves unfair, deceptive, or fraudulent tactics to manipulate borrowers into loans with excessively high-interest rates, unfavorable terms, or hidden fees. Predatory lenders may take advantage of borrowers' lack of financial literacy or urgency for funding, leading to situations where the borrower is placed in a financially vulnerable position.

In predatory lending scenarios, consumers may end up with loans that have terms that are difficult to understand or that are structured in a way that makes repayment nearly impossible, often leading to a cycle of debt. This type of behavior is detrimental not only to individuals but also to the broader market, as it can contribute to economic instability and the erosion of trust between consumers and financial institutions. Understanding this term is crucial for recognizing the importance of ethical lending practices and consumer protection laws designed to prevent such exploitation.