Before you sign any loan, run a short, repeatable set of tests that reveal whether the lender is transparent and the offer is affordable. These checks take 20–60 minutes but can save months or years of costly payments.

Quick testing checklist (step-by-step)

  1. Ask for and read the full written terms
  • Demand a written loan estimate and the complete contract. Never sign a blank or verbal agreement.
  • Confirm: principal, APR, finance charge, payment schedule, total payments, origination fees, prepayment penalties, balloon payments, and any rollovers or automatic renewals.
  1. Run the math (the APY/APR and total-cost test)
  • Verify the APR on the paperwork and calculate the total cost: (monthly payment × number of payments) − principal = total finance charge.
  • Use an online APR calculator or a spreadsheet. If the stated APR and your calculation don’t match, ask for a corrected disclosure.
  1. Compare at least two other offers (the market test)
  • Get quotes from a credit union, community bank, and one other lender. If this offer’s APR or fees are substantially higher, probe why.
  1. Check for aggressive or high-pressure sales tactics (the pressure test)
  • Red flag: “Sign now or the offer disappears,” required immediate fees, threats, or refusal to give paperwork ahead of signing.
  1. Confirm licensing and complaints (the background test)
  • Search the lender’s name and filings: state banking regulator or state attorney general, Better Business Bureau, and CFPB complaint database. Look for licensing gaps or enforcement actions.
  • Example searches: your state’s Division of Financial Institutions and the Consumer Financial Protection Bureau complaint database (consumerfinance.gov).
  1. Inspect key clauses line-by-line (the clause test)
  • Watch for: prepayment penalties, balloon payments, single-payment rollovers, mandatory arbitration, assignment clauses, or ambiguous fee schedules.
  • Request plain‑language explanations for any clause you don’t understand.
  1. Ask for an amortization schedule (the repayment test)
  • A legitimate lender will provide a month-by-month payment table showing interest vs. principal. If they can’t produce one, treat that as a warning.
  1. Use independent verification (the third‑party test)
  • Have a trusted financial counselor, certified financial planner, or consumer-law attorney review the documents. Community legal aid or local nonprofit credit counselors can often help for low or no cost.
  1. Document everything (the paper trail test)
  • Keep copies of all documents, emails, and notes from phone calls (date, time, name, summary). These records are essential if you later challenge the loan.

Common red flags of predatory lending practices

  • Very high APR compared with market alternatives for similar risk.
  • Large, undisclosed origination or hidden fees.
  • Repeated rollovers that extend the loan and increase total cost.
  • Balloons or lump-sum payments not clearly explained.
  • Pressure to sign immediately or refusal to allow time for review.
  • Inability or refusal to provide written disclosures or an amortization schedule.
  • Requests for upfront fees payable to a third party not tied to closing costs.
  • Mandatory add‑on products (insurance, credit monitoring) sold as required.

Real-world example (anonymized)

In my practice I worked with a small-business owner offered a “fast approval” loan with an APR triple market rates and a single large balloon payment at year two. By insisting on an amortization schedule and searching the lender’s complaint history, we discovered repeated rollovers and state enforcement actions. The borrower walked away and secured a term loan from a local community bank.

What to do if you suspect predatory lending practices

  • Pause and don’t sign. State that you need time to review the paperwork or consult a professional.
  • File a complaint with the Consumer Financial Protection Bureau (CFPB) and your state attorney general if you suspect illegal conduct (see consumerfinance.gov).
  • Contact a local legal aid or consumer protection attorney; see resources from the CFPB and Federal Trade Commission for how to report misconduct.
  • If already signed and harmed, review options in state law and remedies such as rescission, restitution or damage claims—start with the CFPB and your state AG and consider the guide “Legal Remedies for Predatory Lending Practices” for next steps.

Safer alternatives to consider

  • Credit unions and community banks typically offer lower rates and clearer terms.
  • Nonprofit lenders and short-term loan alternatives can be less costly than payday-style products. See “Short-Term Loan Alternatives to Payday Lending” for options and resources.

Resources and authoritative guidance

  • Consumer Financial Protection Bureau (CFPB): guides on predatory lending, complaint filing, and how to compare loan offers (consumerfinance.gov).
  • Federal Trade Commission (FTC): consumer protection rules and how to report deceptive practices (ftc.gov).

Internal FinHelp.io links

Professional disclaimer

This article is educational and does not replace personalized legal or financial advice. For tailored guidance, consult a certified financial planner, consumer-law attorney, or your state consumer protection agency.

Sources

  • Consumer Financial Protection Bureau, consumerfinance.gov (2025 guidance and complaint portal).
  • Federal Trade Commission, ftc.gov, consumer protection resources (2025).