What is a predatory loan?

A predatory loan is defined as a loan that comes with unfair or abusive terms specifically designed to take advantage of vulnerable borrowers. These terms often include high-interest rates, excessive fees, and unfavorable repayment conditions, which can create a cycle of debt that is difficult for the borrower to escape. Predatory lending practices often target individuals who may not have access to conventional credit options, such as those with low incomes or poor credit histories, making them more susceptible to exploitation. This emphasizes the importance of understanding the conditions and terms associated with borrowed funds, particularly for those who may not fully comprehend the implications of predatory loans.

The other answer choices reflect types of loans that are generally considered favorable (like low-interest loans or government-subsidized loans) or unrealistic (such as loans that require no repayment) and do not align with the characteristics or intentions of predatory lending practices. Understanding predatory lending is crucial for borrowers to protect themselves from financial traps and to seek more equitable lending options.