Loan scams are poised to become an epidemic if consumers are not meticulous enough and the regulatory authorities do not step up their efforts to enforce the laws of the land. The fact that banks have always been uptight with loans and traditional financial institutions have their share of stringent criteria leave millions of people vulnerable to the alternatives, which is mostly an industry of private lenders. Many of these lenders are registered and licensed but some have dubious intentions. Not all private lenders are bad. Not all secured or unsecured, short term or long term loans are potential scams. But you ought to be proactively conscious of what you are getting into. Here is a comprehensive guide detailing how to prevent loan scams.
Basic Research to Find Credible Lenders
The first step is to know everything you can about a lender. This is the era of aggregator sites. A quick online search, a website that claims to provide quotes from all lenders relevant for the quest and a simple online submission or request for estimate can set the ball in motion. The only problem with such an expedited process is that there are no checks and balances. Who are you basically reaching out to, what details are you providing and how will the information be treated, are you actually getting quotes from genuine lenders and if at all you are getting estimates that will be followed up with the real loans?
The problem is not always with a loan but it usually is always about the lender. When payday lenders charge a certain rate of interest that is declaredly high, a borrower cannot cry foul but albeit one can rue the fact that there is no better alternative available. The scam lies in the nondisclosure of the high rate of interest. Scams emanate from selling your private information, charging you a sum upfront, levying fees you are not told about and even stealing money from your account. Some scammers will not offer you any loan eventually after all the correspondences.
Basic research should be the foundation of any quest for a loan. This is true for all types of loans. Even if you are dealing with banks, you are expected to compare different propositions so you can choose the best. Find out the details about a company you are contemplating. Do not share your personal details yet. Verify the credibility of the company. Find out if it is licensed and registered to operate in your state. Look for information pertaining to its track record. Only when you are satiated with the information at hand should you go ahead and ask for a quote.
Watch out for the Red Flags of Loan Scams
No matter how careful and cautious scammers are, there will be signs or red flags and you should be watchful of them. As Allison Martin, a Certified Financial Education Instructor (CFEI) from LoanStar advises, “Steer clear of companies that claim government approved or licensed by government. All lenders must be licensed and registered”. Such basic legalities need not be advertised in a manner that may lead to the perception that a company is being backed by a government. The government or a regulatory authority does not back any particular lender.
Be cautious whenever you come across lenders that claim to be able to offer you a loan in an hour or a day. Small loans worth a few hundred may still be available in a day, especially with payday loans and title or registration loans. Medium term and long term loans worth thousands cannot be approved in a day or even a week. Complete online approvals, wire transfers, upfront payments, no concern for credit history and transfer of titles and other legal documents of ownership before the sanction or actual disbursal of the loan are telltale signs of loan scams. Do not entertain lenders that have excessively enthusiastic salespeople. All worthwhile lenders in the country and around the world will be reasonably cautious with every potential borrower, unless the two have a longstanding history and hence mutual understanding.
Practice Due Diligence to Prevent Loan Scams
Do not say yes to everything. Do not agree to an expedited process that can effectively skip through a few quintessential steps and therein may lie the terms that will eventually rip you off. Do not fall for tall claims and too good to be true propositions that leads you to skip through loan documents or agreements and sign on any dotted line just to get the sum of money you need. Financial problems can often lead people to hasty decisions and that is why due diligence is always the failsafe to prevent loan scams.
Ask for all relevant documents. Ask the lender to declare everything that has been said. If there was a claim that no upfront fee is charged or the rate of interest will not change throughout the term of the loan, then such statements should find a place in the agreement. The lender should be willing to back every claim in writing and these should become an integral part of the loan agreement. There should be no hearsay, no presumption and nothing on the basis of good faith. Financial matters are too risky to be left to good faith. Operators of loan scams will not care any less on whether or not you proceeded in good faith.
Do not sign on incomplete loan agreement. If there is a term missing, then that should be added and the document should be forwarded to you again. Only sign a comprehensive agreement that leaves nothing to imagination or interpretation. Do not agree to sign on a partial or incomplete agreement with the possibility of an appendix later on. That may never come. Do not agree to be a party of any agreement wherein you do not know everything about. There should not be any underwriter, guarantor, unexplained security or clauses that you are not lucid about. Get everything clarified before you sign the agreement.