That’s not financial engineering though. That’s predatory lending.

Financial engineering can enable predatory lending by repacking low quality debt into complex securities that are easier to sell.

It happened with sub-prime lending that ended with the 1008 crash. I do not know whether it is a significant factor with private credit now.

What separates predatory lending from being a form of financial engineering?

They simply are completely different things.

Financial engineering refers to the creation of complex financial products (usually derivatives) using techniques from financial mathematics[1].

Predatory lending is just lending to people who can’t afford to borrow. No engineering of any kind involved.

[1] https://corporatefinanceinstitute.com/resources/financial-mo...