Why are high-cost loans often targeted at vulnerable borrowers?

High-cost loans are often targeted at vulnerable borrowers primarily because these individuals frequently lack access to traditional banking services. This group may include low-income individuals, minorities, or those with limited financial literacy, who find it difficult to secure loans from conventional financial institutions, such as banks and credit unions, due to stringent credit requirements.

As a result, these borrowers may turn to alternative lending sources, such as payday lenders or title loan companies, that offer high-cost loans with predatory interest rates. The absence of access to affordable credit options forces them into these financially harmful lending situations, perpetuating a cycle of debt that can be challenging to escape from.

The other options do not accurately capture the dynamics at play: high-cost loans are not primarily marketed in wealthy neighborhoods, vulnerable borrowers typically have poorer credit histories rather than excellent ones, and they do not necessarily possess greater knowledge about financial markets, which often leaves them ill-equipped to navigate the complexities of high-cost lending.