Predatory lending refers to the heinous act of being involved in lending practices that take advantage of vulnerable borrowers, such as the elderly, needy or unsophisticated. 
The term also refers to the practice of convincing borrowers to comply with unfair and abusive loan terms. Such loans could take place either through outright deception or through aggressive sales tactics, thus taking advantage of the borrowers' lack of understanding of extremely complicated transactions.

One lending tactic that is generally considered to be predatory is making a secured loan, such as home or car loans, with the expectation that the borrower will not repay the loan and therefore default, following which the lender acquires the title to the home or car in a foreclosure sale. Another typical case of this type of lending is where the monthly payment exceeds 50% or even 75% the borrower's after-tax income, or in case the borrower's income is irregular. While the borrower may be unaware that their default is statistically probable, the lender should be aware of this and not make such loans.

Profits as Indicators of Predatory Lending

Huge up-front fees, kickbacks and / or uncompetitive interest rates often result in extraordinary profits to predatory lenders, especially if the consumers are convinced to undergo frequent re-financing. The making of loans with low fees and competitive rates that are certain to go into default is normally not a highly profitable lending strategy since the amount of the loan may not be recovered after the sale of the collateral, which would give the lender a financial loss on the transaction. While the borrower remains financially liable for the loan balance, any remainder is unsecured and relatively difficult to collect back. However, exceptions to this include large unsecured loans made in order to obtain other businesses from the borrower, such as a merger and acquisition business, and complex loans that are serviced improperly.

In a loan secured by a home or a car, lenders are still likely to make a loss because foreclosure is an expensive process, and foreclosure sales normally yield returns well below the market value of the collateral. The transaction is still profitable to the lender however, if the proceeds of the sale does exceed the loan balance. Thus, certain lenders target elderly homeowners who have considerable equity in their homes, and who might be more easily deceived or coerced into taking out a mortgage loan that they cannot afford to pay back. This is one of the most common lending tactics widely considered to be predatory in intent.

A lender might also originate a loan to a borrower without the means or the necessary cash flow to make the monthly payments, and then immediately sell the loan to a secondary market investor. This usually ensures a profit for the original lender regardless of the possibility of the borrowers default and, these loans are later aggregated and become mortgage-backed securities.

The investor in these securities has a less-than-expected yield from them if and when the borrower does default. Unfortunately, in many cases where a person with a large credit card debt which is unsecured, there are also usually no assets beyond the equity in their home and no cash flow to cover the minimum monthly payments. A better option for them may be to work out a payment plan with the credit card companies covered by what ever though little cash flow they do have, or even to declare bankruptcy so that they do not lose their home in a foreclosure sale. Another far more complex and very innovative but allegedly criminal predatory tactic involves predators creating and exploiting conflicts of interest among the various purchasers and service providers in a pool of mortgages, through frivolous foreclosures of performing loans and legal barratry contrary to fiduciary duty that prove to be extremely profitable for these predators.