What does the term "predatory lending" refer to?

The term "predatory lending" specifically refers to lending practices that impose unfair and abusive loan terms on borrowers. This encompasses various unethical practices in which lenders exploit the borrower's lack of understanding or financial distress, leading to loans that carry excessive fees, high-interest rates, and other detrimental conditions that benefit the lender at the borrower’s expense.

This definition captures the essence of predatory lending, which often targets vulnerable populations who may not be fully aware of the implications of the loan terms they are accepting. These practices can result in borrowers becoming trapped in a cycle of debt, making it difficult for them to meet payment obligations or refinance to more favorable terms.

Meanwhile, the other options present characteristics that are not accurate representations of predatory lending. Simply offering high interest rates does not alone constitute predatory lending, as interest rates can vary widely based on many factors. Overqualification does not align with predatory practices; instead, lenders typically look for borrowers who may be more vulnerable. Lastly, the absence of late fees does not relate to the inherent unfairness or abusiveness of the terms, which is central to the definition of predatory lending.