Wondering, “how do I know if a loan company is legitimate?” While most lenders out there are legitimate, there are some sketchy scams all borrowers should look out for. Check out this helpful article on all the information you need about identifying loan scams and how to make sure you find a legitimate lender!
What Is a Personal Loan Scam?
A personal loan scam is a financial product that is illegitimate and set up to leave the borrower at a loss . Some loan scams are quite serious, such as personal loan fraud. Loan fraud is when fraudulent businesses claim to be legitimate lenders but legally are not. Fraudulent loans may leave borrowers without any loan funds at all and instead charge them fees to take their money. Unfortunately, loan scammers target people with bad credit or past bankruptcies because they know these people have a hard time finding loan approval.
How To Avoid Personal Loan Scams and Find Legitimate Lenders
Before you officially agree to and sign a loan contract, it is essential to do your own research first. Take a look at multiple lenders before you pick one. Try the helpful tips below during your research to make sure you avoid personal loan scams and find a legitimate lender.
Talk to a Loan Associate
Even if you are looking for online loans, you should still talk to a person who works for the lending company. Ask them questions like a common interest rate, what accommodations they have for people with a less than perfect credit history, and what type of payback plans they offer. These questions should give you a good idea of the lender and if the kind of loan products they offer will be a good fit for you or not. If the loan associate gives you any answers you find suspicious, do not waste your time working with them.
Look at Loan Reviews
Most reputable lenders have a rating from the Better Business Bureau. The Better Business Bureau is a nonprofit organization that houses online reviews and company details about different businesses in the United States. You can also find loan reviews on the lenders’ websites or on social media. Looking at reviews from a lender can give you a great idea of what it is like to work with them. If you noticed that many people were unsatisfied with their borrowing experience, it might be a sign to stay away from that particular lender.
Check Out the Lender’s Website
It may also be a good idea to check out the lender’s website. Established lenders usually have a full website with pages dedicated to talking about the different loan products they offer. Take a look at these pages and review the information lenders give about their products. If you have previously spoken to a loan agent, make sure the information on their website matches up with what you were told.
Watch Out for Loan Scam Warning Signs
Most lenders who are not legitimate give telltale warning signs borrowers should look out for. Below is more information on some red flags to look out for when deciding on a lender.
Legitimate Loan Companies Don’t Ask for Money Upfront
While lenders do require a few personal details, such as your physical address and bank account number, they should not ask you for any upfront payment or upfront fees. At the time of signing a loan contract, some legitimate lenders may charge an origination fee, but an origination fee is only acquired after a borrower signs their loan contract. A legitimate loan company will not have a borrower pay any fees upfront until after they have agreed to and signed their loan contract.
Legitimate Loan Companies Have More Than One Page on Their Website
If you go to look at a lender’s website and see the entire site is only one page, this is a common sign the lender is a scammer. A lack of information usually means that lenders are trying to hide something. Legitimate lenders have full websites full of lots of information for borrowers to reference. They also usually have personal finance resources like blogs or debt calculators for borrowers to use for free.
Sketchy Loans That Are Legal but Should be Avoided
There are loans out there that are not loan scams, but are not the best idea because of their high interest rates and fees. These loans present themselves as convenient fast cash options for people who can’t find funding anywhere else. Often, they are directed toward people with no credit, poor credit, or a past bankruptcy. While these loans may technically be legal, they almost always set the borrowers up for financial failure. A few kinds of loans to avoid include:
- Payday loans, also referred to as an online payday advance.
- Car title loans.
- Auto pawns
- Loan brokers.
Although these loan options are legal in most states, many borrowers still consider them loan scams. Financial products like car title loans or payday loans almost always come with astronomically high-interest rates and extremely brief payback terms. These kinds of loan often leave borrowers at risk of missing payments or defaulting on their loans altogether.
How To Recover After Falling Victim to a Loan Scam
Have you fallen victim to a scam loan online? Having your financial situation taken advantage of is always a frustrating experience. Get your finances back on track with the helpful tips below:
Report the Loan Scammer
While there may not be anything your local law enforcement can do, you can always contact the Internet Crime Complaint Center or the Federal Trade Commission and inform them of your situation. The Internet Crime Complaint Center is a government-run program that allows consumers to report fraudulent financial institutions. If you have a family or loved one who was a victim of scams from non-reputable online lenders, you can also fill out a complaint on their behalf.
You can also leave a review with the lender and talk about your experience. Reviews on the lender’s website or even on social media can be a great way to spread the word about scam lenders. That way, other loan seekers can see what happened with your experience and not become loan scam victims themselves.
If you are still stuck with a balance from your a high interest loan, consider refinancing right away. There are plenty of legitimate financial institutions that can help you get out of a bad loan deal. Refinancing with funding options like a bad credit personal loan can be the perfect solution to get you out of a previous loan. Just make sure you thoroughly read your loan contract before accepting any loan offer.
Look for Loan Forgiveness Programs
If refinancing is not an option for you, look for loan forgiveness programs. A loan forgiveness program is an alternative to filing for bankruptcy. While these programs have a chance of lowering your overall credit score, they are still a better option than filing for bankruptcy.
Make the Most of the Money You Do Have
While you recover from your loan scam, make the most of the money you do have. If you have not already, create a budget to ensure you are using your money in the most efficient way. Keeping your finances organized is vital to fully recover after going through a loan scam ordeal.
Benefits of Working With Legitimate Personal Loan Lenders
Once you’ve done the research and have found a lender who is a good fit for you, it’s time to reap the rewards! Below are a few benefits borrowers can enjoy when they have legitimate personal loans:
Legitimate lenders have a secure website to keep information safe and encrypted, so customers don’t have to worry about identity theft or leaving their bank details vulnerable.
Loan Details Better Suited for Borrower’s Needs
A reputable lender ultimately has the borrower’s needs in mind, which means they don’t want to stick people with unaffordable interest rates, a super low loan amount, or inconvenient payback terms.
Potential To Boost Credit Score
You don’t have to worry about keeping up with your payments when you have an affordable loan. Paying off a loan by making timely payments can significantly boost your payment history. Since payment history is the most impactful category that contributes to your credit score, you may see an increase next time you do a credit check!