Beware of loan scams that could cost you thousands of dollars and leave you without a loan. Most loan scams are some form of the advance fee loan, where the “lender” asks you to pay some money upfront to receive your loan. After you send the fee, the lender disappears without ever sending you the loan.
When you’re desperate for money, you can be easily distracted from obvious cues of a scam. Remember, if it seems too good to be true, it probably is. To keep you from being taken advantage of, here are some of the most common loan scams.
“This loan requires a deposit.”
Down payments and deposits are common when it comes to getting some loans, that’s why it’s easy to use the “deposit” concept to scam consumers. Take note of how the lender asks you to send the deposit and the reasons they give for requiring one.
“Your credit is bad so send a few payments in advance.”
People with bad credit are often easy targets because of their desperation. If you can’t get a loan through conventional means, you might be easily convinced that you have to pay more to get a loan. Legitimate lenders charge a high interest rate when you have bad credit. They don’t ask for payments upfront.
“We need a credit insurance/application/professing fee first.”
If the company doesn’t ask for payments, they may request that you pay some sort of fee upfront. Legitimate lenders disclose fees upfront and often add them into the cost of the loan, rather than require you to pay upfront.
“We need collateral for the loan.”
Bad credit or not, the scammers might tell you they need some monetary collateral from you before they can disburse funds. If a real lender needs collateral, they typically ask for some type of property, not money.
There’s another loan scam, that’s not always as easy to recognize as advance fee loans. This is the “You can afford this loan” scam. Greedy lenders might try to convince you that you can afford a much bigger loan than you can. You’re tricked into signing on the dotted line and left with a bill you can barely afford. If you put up any kind of collateral for the loan, like your vehicle, the lender can take it if you become delinquent on your payments.
How to Avoid a Loan Scam
Knowing the common scams will help you recognize one if it comes your way. Here are a few more ways you can avoid getting scammed:
Don’t be confused by fake bank names that are similar to names of respected and well-known banks. Many scammers trick consumers by using a recognizable name. If you have questions about the validity of the bank, use the internet to search for the bank.
Don’t expect to get loan approval over the bank. According to the Federal Trade Commission, it’s illegal for U.S. companies to promise loans over the phone. If a bank promises you a loan over the phone, it’s likely a scam.
Don’t wire money. This includes sending a cashier’s check or MoneyGram. The money is unrecoverable if you do.
Watch out for loans that don’t require credit approval, especially if the lender requests personal information like your social security number. If the lender doesn’t check credit, it doesn’t need your social security number, right?
If you’re having a financial crisis and don’t have access to credit or savings, seek help from a consumer credit counseling agency. They’re often low-cost or even non-profit and can help you set up a budget and make payment arrangements with your creditors.