Housing and young adults: Be wary of predatory lenders

Predatory lending is the unethical practice of offering loans to individuals at rates they will not be able to pay back. This catches vulnerable people in a vicious debt cycle, harming their credit score and making a debt-free future feel impossible. Predatory lending is dangerous for everyone, but if you’re a young adult, such as a new high school or college graduate, it can be especially dangerous for you.

Payday loans have the highest interest rates in the industry with average annual percentage rates between 391% and 521%. This massively increases the total repayment price, meaning only about 2% of payday borrowers can actually afford to pay back the loan. To make matters worse, predatory lenders are often given direct access to borrowers' checking accounts so they can withdraw money before the borrower is able to pay necessary bills and other expenses.

Young people possess many of the characteristics payday lenders target. For example, young people on average have lower salaries than their tenured, older peers, and are more likely to rent than own their homes. A study conducted by Pew Charitable Trusts found people making less than $40,000 were 62% more likely to utilize payday loans, and that renters were 57% more likely to borrow from predatory lenders compared to homeowners. Additionally, the National Education Association noted that payday loans are increasingly being marketed to young people because they’re more likely to have student loan debt.

Unfortunately, Tennessee has the highest number of predatory lenders in the country. Our state has more than 1,200 predatory lending locations in 89 of Tennessee’s 95 counties. Additionally, Shelby County has one of the highest rates of predatory lending in the country. Our home county leads the state with the highest number of predatory loan locations with more than 232. Shelby County also has the second highest concentration of predatory lenders per capita at 25 lenders per 100,000 residents.

But predatory lending doesn’t only come in the form of payday lenders. Many financial institutions specifically target young people through the homebuying process through inflated, unnecessary fees and charges, or misrepresentation of the loan’s terms or risks. Other predatory lending tactics include convincing borrowers to continually refinance their home, with no benefit to them, using coercive sales tactics and even encouraging borrowers to lie about their finances so that they can get a loan.

There are several tips you can follow to avoid and spot predatory lending at any age. For example, never let anyone convince you to make false statements on your loan applications, and ensure you read anything you’re given thoroughly and ask a lot of questions.

However, one of the best ways that you can avoid predatory lending as a young person is to contact United Housing so that we can help you get started off on the right foot. UHI offers a loan product specifically for refinancing predatory loans, in addition to general financial counseling services, homebuyer education courses, loan products and more. UHI can provide personalized advice and support to guide you through any financial situation. Give us a call today at 901-272-1122.