SoFi

The allure of a quick loan can be hard to resist when there is a pressing need for cash. The amount of money needed might not be a lot, but it’s needed quickly. Looking for that small loan, though, might lead to lenders who charge extremely high interest rates and offer loan terms that are difficult to meet.

This is called predatory lending, and it works in the best interests of the lender, not the borrower. When you know what to look for in a reputable lender, however, it becomes easier to avoid becoming a victim of predatory lending practices.

Guide to Predatory Loans and Avoiding Them

Learning more about loans can help you avoid those with predatory rates and terms, ones that can trap you in a cycle of debt. Information and education are a consumer’s best friends when looking for any type of loan. For small loans that seem only to be available through lenders that seem less than reputable, those two things become even more important.

One piece of information that is important when looking for a loan is knowing what your credit report contains. Consumers can access their credit reports at no charge through AnnualCreditReport.com. Personal information, such as your name, current and previous addresses, and your Social Security number, are easy to verify.

Checking the accuracy of items on your credit report is also important because this information is used by lenders to assess your creditworthiness. Lenders want to know how many credit cards and loans you have, if you make your debt payments on time, and other factors.

Once you have a picture of your overall creditworthiness, it’s time to find a reputable lender to work with. It’s a good idea to compare several lenders to find one you feel comfortable working with and is a good match for your financial needs.

What Is Predatory Lending?

Predatory lending often targets consumers with poor credit, no credit, low incomes, lack of education, and/or for other unfair and discriminatory reasons.

Lenders who offer what are considered predatory loans do not have the best interests of their clients in mind — their goal is to make a profit at the expense of their client, even if that means engaging in misleading tactics. They may deceive borrowers into accepting three-digit interest rates or extreme prepayment penalties, for example. This can result in the loan holder struggling to repay what they owe and being caught in a debt cycle.

Recommended: What to Know Before You Borrow Money Online

How Predatory Lending Impacts Borrowers

As mentioned above, predatory lending, with its high interest rates and unfavorable terms, can keep borrowers trapped in a cycle of debt. In other words, they can’t “get ahead” of what they owe, or make a dent in the loan principal. This can be, of course, extremely stressful.

Financial Consequences of Predatory Lending

Those who have predatory loans can face severe financial consequences. Due to the stratospheric interest rates, they may find the amount they owe rising quickly. They may have to refinance their loan multiple times since they can’t pay it off, and each time, new fees can be added. This can damage the borrower’s credit rating as their debt-to-income ratio rises.

Predatory lending can also lead to the loss of an asset, if one was used to secure the loan. For example, if a person used their home or car as collateral, the lender could seize that if the loan goes into default. (Many personal loans are, however, unsecured loans, meaning no collateral is required.)

Predatory Lending Tactics and Practices

Reputable lenders are likely to be transparent about their interest rates, loan terms, and any fees they might charge, such as a personal loan origination fee or prepayment penalties.

Those engaging in predatory lending, however, may not be as transparent. They may try to hide important details about a loan and steer an applicant toward a loan they may not be able to afford.

To make sure a lender is not engaging in predatory lending practices, here’s a look at some things to avoid.

•   An unlicensed lender: A reputable lender will be licensed in the state they are doing business in and will be expected to uphold certain professional standards set by the Nationwide Multistate Licensing System (NMLS)®. Consumers can look up the license status of individual and institutional lenders through NMLS Consumer Access℠.

•   Rushing during the loan process: If you feel like a lender is hurrying you along without addressing your questions or concerns, you might wonder if they’re trying to hide some details about the loan terms or trying to approve you for a loan you might not be able to afford. A reputable lender will take the time to make sure you understand the documents you’re signing at the loan closing and that the loan works for your financial needs.

•   High interest rates and fees: A lender who offers only a high interest rate, one you don’t feel you can afford, probably doesn’t have your best interests in mind. Doing some research on typical interest rates available for your credit score and common fees charged — and comparing lenders who work within those parameters — is a good way to filter out predatory lenders.

•   Overpromising: A lender who tells you they can approve you for a loan regardless of your credit history is likely promising something they won’t be able to deliver on. Lenders typically have thresholds at which they are willing to loan money, outside of which they may decline an applicant.

Recommended: What Is Considered a Bad Credit Score?

Common Types of Predatory Loans

Three common predatory lending examples are payday loans, auto (or title) loans, and subprime mortgages.

Payday loans may come to mind when thinking of predatory loan examples. These types of loans target those who are looking for quick cash and may not think they will qualify for anything else.

Often short-term loans for small amounts, typically $100 to $1,000, payday loans are generally meant to be repaid with the borrower’s next paycheck. They are typically unsecured loans and often have high interest rates. A payday lender may refer to a “fee per $100 loaned” instead of disclosing the annual percentage rate (APR). This tactic hides the extremely high APR that is typical for a payday loan — say, 400% APR.

Similar to payday loans, auto title loans are an example of a predatory loan that is often made to an applicant who cannot qualify for a more mainstream loan. The borrower’s vehicle is used as collateral against the loan, with the borrower signing the title over to the lender. If the loan is not repaid, the lender keeps the title and has ownership of the vehicle.

Subprime mortgages are another predatory lending example. This is a type of mortgage made to a borrower who may not be able to qualify for a conventional mortgage based on the prime rate. Because the lender may perceive this borrower as an increased lending risk, they may offer an interest rate higher than that of a prime mortgage to offset this risk.

How to Spot a Predatory Lender

There are some telltale signs of predatory lending that it’s wise to be aware of. These include high-pressure sales tactics, such as the lender saying you have to sign right away or the offer will expire. They may also say that you are guaranteed for approval, regardless of your credit rating; this could indicate a personal loan scam. Responsible lenders review your credit background and then offer you the appropriate rate and terms.

Red Flags in Loan Terms and Conditions

When considering loans, here are some warning signs that you may be dealing with a predatory lender:

•   Extremely high interest rates. The rates are often significantly higher than average. They may be expressed in an unconventional way, such as not as an annual percentage rate, to make them appear lower.

•   Excessive fees. Some lenders may have fees that are hard to discern. Make sure you check whether there is, say, a prepayment penalty for paying off your loan early, or origination and processing fees. All of these can drive up the overall cost of the lona.

•   Balloon payments. Predatory lenders may entice you with low initial payments, but the amount you owe can then balloon, or grow steeply, as you move further into the repayment process.

•   Frequent refinancing. Some lenders know that borrowers will struggle to make payments and offer the option of frequent refinancing (called loan flipping). This, however, can lead to more fees and interest piling up, creating a debt cycle.

•   Collateral requirements. Some secured loans, which use assets to back the loan, are totally legitimate. But when lenders require collateral along with the other factors mentioned above, it can lead to a scenario where a loan goes into default and a home or car is seized.

What Are Good Lending Practices?

A reputable lender will work with you to find the loan option that best meets your financial needs. That’s not to say it won’t be beneficial to them, but it will be good for both lender and borrower. Just as there are some ways to identify predatory lending, there are ways to identify a lender that does business in an honest manner.

•   Licensed lender. Reputable lenders typically display their lending license for potential clients to see. If you’re meeting with a lender in their office, you may see their license framed and displayed on a wall. If you’re working with an online lender, look for their license information on their website. It might be on their About page, Legal page, or FAQ page.

•   Answering your questions. When you have questions about a lender’s personal loan options, terminology in the loan agreement, or general lending questions, a reputable lender will take the time to answer them and help you understand the process.

•   Competitive interest rates. Generally, lenders offer a range of rates based on the creditworthiness of each applicant. But they will be competitive with other lenders making the same types of loans. You can use an online personal loan calculator to get an idea of how much you might qualify for.

•   Realistic offers. A lender that has your best interests in mind will do what they can to approve you for a loan that you can afford, not one that you will be at risk of defaulting on. A happy client could mean referrals to other potential clients, and that is generally something a lender strives for.

What Can Be Done If You Are a Victim of a Predatory Loan?

One of the first things you can do if you believe you’re a victim of predatory lending is submit a complaint with the Consumer Financial Protection Bureau (CFPB). The bureau will send the complaint to the lending company and work to resolve the issue. The lending company communicates with both the client and the CFPB about the complaint, generally within 15 days with a final response in 60 days.

All complaints submitted to the CFPB are logged in the public Consumer Complaint Database, which can be a good place to check when comparing lenders you’re considering doing business with.

Personal Loans as an Alternative to Predatory Loans

When you need to borrow money quickly, a predatory loan like a payday loan may not be your only option. Lenders offering personal loans are fairly easy to find in today’s marketplace, and many of them are online lenders, which can make the process more streamlined.

If you’re considering a loan as a method to build your credit, a payday loan may not be the right financial tool. Many payday lenders don’t check an applicant’s credit report when making the loan, nor do they report payments to the credit bureaus. Essentially, even if you make regular, on-time payments, your credit score will not benefit from your diligence.

A reputable personal loan lender, however, will check an applicant’s credit report during the loan approval process and report payments to the credit bureaus. In this case, making regular, timely payments can positively impact your credit profile — and not doing so can have a negative impact.

Recommended: Typical Personal Loan Requirements Needed for Approval

Are Smaller, Short-Term Loans the Same as Predatory Loans?

There are reputable lenders that offer short-term loans for small amounts of money. Predatory lenders will exploit a person’s need for quick cash by trying to trick them into an unfair loan agreement they can’t afford. A reputable lender, on the other hand, will work with you to get a loan for the amount of money you need and that you can afford.

Some lenders do have minimum amounts they will lend, sometimes $3,000, $4,000, or $5,000, just as they have maximums of, say, a $50,000 personal loan or even a $100,000 one. If you don’t need this much money, you’d be better off looking at other lenders. There are lenders that will lend smaller amounts, though — even less than $1,000.

What Is the Smartest Way to Get a $5,000 Loan?

A smart way to find a $5,000 unsecured personal loan is to compare interest rates and fees of lenders who loan small amounts. This is easily done through an online personal loan comparison site or by calling a few different lenders. It probably won’t be too difficult to find multiple lenders to compare, as $5,000 is a fairly common personal loan amount.

A good first place to consider is your current bank or credit union. They may offer rate or fee discounts for current customers.

Online lenders may have shorter loan processing times, so if you need the money quickly, that could be a good choice.

The Takeaway

There are times in life when a quick infusion of cash is needed to help deal with a financial emergency or other need. To avoid falling victim to predatory lending, it’s a good idea to step back and take some time to compare lenders. Getting a loan from the closest payday lender on the block will likely mean paying extremely high interest rates and fees, and difficulty paying off the loan. Comparing loan offers can be a smart move.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Is predatory lending a crime?

Many states have enacted anti-predatory lending laws. Some states have completely outlawed payday lending, while others have placed caps on the amount lenders can charge. However, many violations go unpunished because consumers aren’t aware of their rights.

What are the most common predatory loans?

The most common types of predatory loans include payday loans, car title loans, and subprime mortgages.

What APR is considered predatory?

Predatory loans generally have interest rates in the triple digits. Loans with annual percentage rates (APRs) no higher than 36% are considered affordable loans.

What should I do if I suspect I’ve taken out a predatory loan?

If you think you have taken out a predatory loan, collect your loan documents, get guidance from a consumer lawyer or a certified financial counselor, and file a complaint with government agencies. Also, be sure not to sign any more loan documents or refinance the debt with the lender without having received professional guidance.

How can I report a predatory lender?

There are several ways to report a predatory lender. You can file a complaint with the Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC), your state’s attorney general, your state’s consumer protection agency, and/or the Internet Crime Complaint Center. After a bit of research, you may want to file complaints with multiple organizations.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q425-062

Waiting for the IRS to process your federal tax return? You might be wondering how long it takes for your tax return to come back. If you file electronically, your tax return will usually be processed within 21 days. A paper return can take six weeks or longer. If you include direct deposit information, your refund will come back much faster.

If you’re concerned because your federal tax return is delayed, you can check its status online or speak to an IRS representative. Keep reading to learn what’s going on behind the scenes at the IRS with your tax return and what factors may affect when you’ll see your refund.

How Long the IRS Takes to Process Your Taxes

The main factor affecting when you get your tax return back is how long the IRS takes to process your information. Processing time will vary depending on whether you file an electronic or paper return. On average, processing for e-file returns takes less than 21 days, whereas paper returns can take more than six weeks.

If you want to get your tax refund early, it’s best to file electronically, include direct deposit information, and file early in the tax season.

How Long a Tax Refund Typically Takes

Once your return is submitted to the IRS, processing can be broken down into three stages: return accepted, refund approved, and refund sent.

For electronic returns, you will typically see an email from the IRS within 24 hours confirming that your return has been accepted. For paper returns, you can expect notification in about four weeks. The acceptance stage just means the IRS has verified your personal information and checked that your dependents haven’t been claimed by someone else.

Next, the IRS will take a closer look at the information you’ve provided and either approve it or send a letter by mail asking for a correction or more information. This is the part that takes less than 21 days if you’ve e-filed.

Paper returns take longer because they must be manually uploaded by a human. Once uploaded, the information you provide can then be compared to data in the IRS system. However, submitting a paper return isn’t the only factor that can slow down a refund.

Factors That Could Slow Down Your Refund

If your return was filed electronically more than 21 days ago and you haven’t seen your refund yet, there could be a number of reasons for the delay, including:

•   The return has incorrect or incomplete information

•   Your personal info has potentially been used in identity theft or fraud

•   The child tax credit or recovery rebate credit may need to be corrected

•   The return qualifies for an additional child tax credit, earned income tax credit, or injured spouse allocation (form 8379)

•   Your bank or credit union needs additional time to post the refund to your account

If the IRS needs more information or wants a corrected return, they will contact you via mail. Many issues can be quickly resolved, especially if your finances are organized, as in a budget app. In the event that you owe money, the IRS will work with you to develop a payment plan.

Recommended: Tax Credits vs. Tax Deductions: What’s the Difference?

How to Track the Progress of Your Refund

The IRS offers two ways you can check the status of your refund: online or with a representative. An online tool called “Where’s My Refund?” allows you to check the status of your federal return. You’ll need the following information on hand:

•   Social Security number

•   Filing status (single, married-filing joint, married-filing separate, head of household, qualifying widower)

•   Expected refund amount

After inputting this information, you should be able to see whether your return has been accepted, processed, or sent back to you.

The IRS also has representatives who can research the status of your refund, either by phone (1-800-829-1040) or in person at a taxpayer assistance center. Note that the IRS probably won’t be able to give you much information if you e-filed less than 21 days earlier or by paper less than six weeks earlier.

As with the online checker, you’ll need to provide the representative with your Social Security number, filing status, and the refund amount you expect.

What to Do If Your Refund Arrives and Has a Mistake

If you receive your refund and realize there’s a mistake, you can file an amended return to correct it. Keep in mind, you can’t electronically file an amended return; you must send it by mail.

Some mistakes are identified by the IRS. In that event, you’ll receive a letter in the mail explaining the issue and how to respond.

If you’re still unsure of what to do, the IRS offers a hotline where you can ask for guidance.

•   Individual taxpayers: 800-829-1040 (TTY/TDD 800-829-4059)

•   Business taxpayers: 800-829-4933

Recommended: My Tax Preparer Made a Mistake. What Can I Do?

How Long the IRS Has to Audit Your Taxes

If the IRS needs to review your tax return in more depth, you may be audited. Generally, the IRS tries to initiate audits as soon as they identify an issue with your tax return, but they may go back as far as three years. In cases where the error is substantial, they can audit up to six years of prior tax returns.

The Takeaway

If you file electronically, your tax return will usually be processed within 21 days. A paper return can take six weeks or longer. If you include direct deposit information, your refund will come back much faster.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

When can I expect my 2025 tax refund?

According to the IRS, nine out of 10 tax returns are processed within 21 days. To expedite the process, you can file your return electronically and include direct-deposit information. Paper returns are generally processed within six weeks.

How long does it take to get your tax refund direct deposit?

Most taxpayers who e-file and include direct-deposit info receive their refund in 21 days. If you submitted a paper return with direct-deposit info, you can generally expect your refund within six weeks.

How long does it take taxes to be returned?

Most taxpayers who e-file can expect refunds within 21 days. If you file via paper return, expect processing to take six weeks or more.

Photo credit: iStock/Baris-Ozer

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SORL-Q425-077