You’re a Victim of Predatory Bad Credit Loans, Now What?

By Angela Monroe - October 10, 2019

Taking out a loan when you have bad credit is not all easy-breezy. While there are many lenders that provide bad credit loans nowadays, loan sharks also use this type of financing to lure victims. If you’re not careful, you can fall victim to predatory lending, which can severely damage your financial future.

Bad Credit Loans are for Borrowers with Poor Credit

Lenders do not consider your credit records as an essential deciding factor in the approval of your loan application. However, they still check your credit records to determine the suitable loan terms and interest rate for you.

Because your credit record is not heavily factored in, you wouldn’t be denied the financing based on your history of making late payments or defaulting on previous loans. However, your likelihood to not repay debts based on your credit record puts lenders at a high risk of not being able to get back their money should they proceed to grant you the loan. To compensate for this risk, your financing typically comes with a higher interest rate and more fees than standard loans.

Despite the higher cost of bad credit loans, they should remain reasonably affordable for you. Lenders should assess your financial capacity for repayment and make sure that you can afford to make on-time payments on the money you borrow. They do this by looking into your current financial situation as reflected in your income tax returns, bank statements and other financial documents. They should also disclose all the associated fees before encouraging you to sign the binding loan contract.

When Do Bad Credit Loans Become Predatory?

Bad credit loans become predatory when they are too expensive to be repaid. Sometimes, your desperation to get financing despite lacking the capacity for repayment clouds your better judgement. You would proceed on your loan application despite the high interest and fees and having no stable source of income for the monthly loan instalment.

A good lender would check into your financial circumstance and capacity for repayment before granting you the funds. If they think you can’t repay the loan, you would be rejected. While this may not resolve your money issues, it keeps you from getting your assets repossessed or falling into a debt trap. 

A predatory lender, on the other hand, takes advantage of your vulnerable situation by processing your application and granting you the funds fast—sometimes in just a day or two—without running a financial background check on you. This is because their real goal is not to help you get fast financing despite your bad credit record but to earn a large profit from the astronomically high interest of your loan and to repossess your property after the anticipated loan default. 

Not only does taking out such an expensive loan worsen your financial position, but it also damages your credit profile. The record of late repayments, loan default and property repossession also damage your credit record and hurt your chances of getting approved for future financing. 

What to Do if You’ve Dealt with a Bad Credit Loan Predator

Use your right of rescission

If you’ve just signed a bad credit loan contract and realized you may have dealt with a predatory lender, you may still have the time to walk away from it.

Rescission is cancelling the contract as if it had never existed. Once a contract has been rescinded, no rights under the contract exist. In the US, consumers can rescind a loan contract up to three days after signing it and up to three years if the lender fails to provide a notice of rescission. In Australia, laws pertaining to contract cancellation varies in different states. Ask the Australian Competition and Consumer Commission for legal advice. You can also contact your local consumer affairs agency to discuss your rights and options. 

If your loan was offered by an aggressive telemarketer or door-to-door salesperson, it may come with a cooling-off period. Within this time, you have the right to change your mind and cancel the agreement without penalty.

File a consumer complaint

Many Australian states require lenders to have a license. These help regulate lending practices and protect consumers from getting stuck in a debt trap. Loan sharks are usually not registered because they charge extremely high rates and fees. If your lender is not licensed, file a complaint with the ACCC.

Refinance your loan

Another option is to find a reputable lender willing to refinance the loan. If you can refinance the loan, you can drop the predatory lender. Just be sure not to replace one bad loan with an equally bad loan. Take your time when searching for a new lender and do your research.

If getting out of the contract is not doable, you can refinance your loan with a reputable lender. Loan refinancing involves taking out a new loan to pay off your outstanding bad credit loan. This is especially helpful if a predatory lender charges you with a very high interest rate and plenty of associated fees. Just make sure to do your research before dealing with another lender to avoid replacing one bad loan with just an equally bad loan. 

Signs of Predatory Lending 

There are many tell-tale signs of a loan predator. While these signs do not necessarily mean that that they’re out to get your money and your assets, it is smart to understand red flags. The rule of thumb is, as in dealing with many other aspects of life, never trust the offers that are too good to be true. If it’s too good to be true, it probably is.

1. The offers seem too good to be true.

Lenders can entice you with guaranteed approvals, no credit check and low interest rate and best deals. What you need to know is:

  1. There are no guaranteed approvals for loan applications.
  2. Lenders are required by the Australian law to check your credit record to assess your capacity for repayment. If they don’t look at your ability to pay back a loan, they could be more interested in something else like repossessing your assets.
  3. Bad credit loans have higher interest rates than standard loans. If the monthly repayment is low, you may be paying it for a long time or there may be a lot of hidden fees that have not been discussed.

Always review your contract before signing. Watch out for hidden fees, confusing sentences and unfavourable terms. 

2. The lender isn’t licensed in your state.

The Australian law requires to get a licence in the state where they operate. This helps regulate lending practices and protects consumers against loan sharks that approve loan applications fast in exchange for extremely high interest rates and fees. 

Check with your local department of business oversight if the lender you’re dealing with is registered. 

3. There are plenty of fees that have not been discussed to you upfront.

If a lender refuses to give you the full details of your loan cost even after you’re provided with your credit information and income, it could mean that there are a lot of hidden fees that come with your loan. 

4. You are time-pressured to sign the contract.

When you are rushed to sign a loan contract, you may miss a lot of important clauses that impact your future repayment. Never sign the deal unless you’ve carefully read and understood the agreement. When a lender doesn’t give you enough time to review the contract, it likely means that they are hiding something. Your contract may be laden with hidden fees and unfavourable conditions that the lender doesn’t want you to notice.

5. You are asked to sign a contract with large blank spaces.

A loan contract with large blank spaces is suspicious. After affixing your signature on the paper, a scheming lender can fill it out with clauses that you would never agree to. Before sealing the deal, ask for another copy without the suspicious blank spaces. If the lender refuses, look for another lender.


Bad credit loans are used by predatory lenders to exploit borrowers who are desperately seeking financing. But this should not discourage you from taking out a loan despite a bad credit record. To look for reputable lenders, do your research, read customer reviews and compare rates. Also, make sure that you understand your contract by heart before signing. 

Loans For People With Bad Credit has over 35 years of experience in helping Australians get financing. We team up with reputable banks and lenders across the country to help find the right loan for you. Apply for a Loan Pre-Approval today or call us on 1300 769 384.


See also:

Common Signs of a Bad Credit Loan Scam

How Many Months Does It Take to Fix Bad Credit?

What Are the Causes of Bad Credit Rating?

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


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