What are predatory loans?

Predatory loans are characterized by high costs and unfavorable terms, which are often intentionally designed to exploit vulnerable borrowers. These loans typically feature excessive interest rates, hidden fees, and misleading terms that make it difficult for borrowers to repay them. The target demographics for such loans often include low-income individuals, those with poor credit histories, or those who may not fully understand the risks involved, making them particularly susceptible to predatory lending practices.

Predatory lending practices can lead to a cycle of debt for borrowers, as they may find themselves unable to meet the repayment terms, forcing them to take on additional debt to cover previous loans. This exploitation of the borrower's financial situation is a hallmark of predatory lending.

The other choices do not align with the characteristics of predatory loans. Low-interest loans designed for low-income individuals promote accessibility and affordability, small loans with no interest for a limited time represent a supportive financial product, and loans that primarily focus on credit scores for approval do not inherently indicate predatory behavior; rather, they may reflect standard lending practices that assess borrower risk.