For Credit Education Month 2022, we decided to focus on the link between credit and debt – two subjects that often go hand in hand. For this week’s article, we’re talking about loans, and specifically how to identify and avoid predatory ones.

Sometimes it feels like we’re being bombarded with credit deals. Credit card offers mailed to your home, “no credit, no problem” car lots, payday lending ads, and more. But what are some clues that these offers might be predatory?

If the loan offer seems too good to be true, it probably is. Look for the catch before signing any agreement — the price for speed and convenience may be high fees, getting trapped in a cycle of debt or being forced to give up your assets. This often includes offers that seem surprisingly easy to get approved for. For example, if a lender promises not to check your credit before offering a loan, they are most likely making up for that risk by charging high rates or structuring loans with high upfront fees.

Avoid balloon or lump sum payments, and instead opt for fixed monthly payments. A balloon payment plan leaves you paying small payments that increasingly grow until a very large amount is due at the end of the loan term, increasing the chances that you might not be able to pay it off.

A good lender will report on-time loan payments to at least one of the three main credit bureaus, which allows the borrower to earn a better credit score and lengthen credit history. If this isn’t the case, do some research and choose a different option for your loan.

Not long ago, having access to credit was a serious problem for women, low income people, and communities of color. This has shifted more recently to be an issue of what types of credit and lending are offered. What is often referred to as fringe lending practices are much more pervasive in low income neighborhoods and through targeted advertising.

At the end of the day, the best thing you can do when choosing a loan product is proceed with caution – read the fine print, be aware of common pit falls, and research your lender.