Loan scams are usually identifiable with high-pressure sales tactics. However, among many honest loan companies, there are also the ones you need to be wary of. You can check whether you can trust the loan company based on many warning signs like demanding money up-front and aggressive sales techniques.
If you are caught up in a financial crisis, a quick fix can lead you right a scam. Fraudulent companies pose as lenders to take advantage of one’s haste and lack of attention to get you looked to a loan scam that appears very enticing. A fraud that professes to be a loan can loot you thousands of dollars and even expose you to identity theft.
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What is a Loan Scam?
Loan scams are essentially a crime that does not follow any legal guidelines. The money in loan scams never actually materializes. They are not just unfair or have unaffordable terms; they never really turn out to be a loan.
What types of Loan Scams are there?
Crooks prey on a consumer’s financial weakness by promising financial assistance. Let’s look at the various types of loan scams through which they lure the victims in,
Student Loans
Student loan scams play out either by charging to help fill out the FAFSA form or debt relief companies that guarantee loan forgiveness but are just after fees.
They may guarantee impossible offerings with incorrect advice for complex situations. They demand costly upfront payments and are laden with lawyers to appear legitimate.
Most student loans are made through the government, but private student loans are available from banks, credit unions, and other institutions. Also, many personal student loans have variable interest rates, contrary to the lower fixed rates offered by federal loans.
Mortgage
Mortgage scammers often find people who are having financial troubles by reviewing publicly available foreclosure notices. Scammers even promise that the homeowners can stay in their house, followed by signing loan-like paperwork. In reality, the owner is signing off the house to the individual.
At times, they demand fees for counseling or auditing but do not deliver any real help.
Personal Loans
Legit personal loans can help you with debt consolidation, but they are not debt relief scams. They promise to settle your debts but end up charging you fees. With your debts still unpaid, your accounts fall into default, and your credit score gets damaged. It may also lead to a lawsuit from creditors.
Car Title Loan
With your car title as collateral, you can get a loan of up to 50% of the car’s value. The usual interest rate on a car title loan is 25% per month and must be repaid. Meaning if you got a loan of $500, you would have to repay $625 in addition to the fees within 30 days, or your car gets repossessed.
In some cases, the loan gets rolled over into another month, leading to an even larger cash outlay, somewhere around $800 to pay off the interest and fees.
How do Loan Scams Work?
Loan scams layout various ways, the basic being tricking you into paying money and then not coming through with the loan funds. Standard scammer techniques are:
- They do not require a credit check.
- The scammers demand upfront payment like an application or credit check fee before processing your application.
- They ask you to send money through a channel that is hard to trace and does not involve a bank account.
- They pressure you into making a decision instantly.
Borrowers with bad credit who won’t qualify for other loans could be at risk from scammers who are out to prey on helplessness.
The trademark of a loan scam is an advance fee. Dishonest lenders charge upfront fees for services, insurance, or processing, by promising future funds when they never actually plan to lend any money.
Advance fee loan scams are still going very strong, the only change being the ways the victim is approached and engaged with. They refer to news and pop culture to sound more relevant and authentic.
How do you spot Loan Scams?
If you are looking for a loan, always go through these red flags to stay safe,
Upfront Money
Do not pay money before getting your loan capital. The scammer might ask you to make a payment through an unusual payment method. There is a legitimate fee levied, but any other costs other than that are a red flag.
High-pressure sales tactics
Do not fall for the “act now” or the “limited time offer” call to action. These are ways to pressure you from making fast and wrong decisions.
Be 100% sure of what you are diving into, know the process and where you fit it, ask for verification.
Credit Cross-Check
Your creditworthiness is determined based on your credit score. Therefore, the companies promising not to check your credit are potential scams.
Who approached whom for the loan?
If a company advances towards you out of the blue with an offer for a loan, it is likely a scam.
The physical address
A legitimate should have a physical address that you can check. If there is none, it is likely a front for a scam. Check if the company is registered in your state with your state’s attorney general’s office.
Unsolicited loan approval
It is a scam if you are approached saying that your loan has been approved when you don’t recall initiating one.
What to do if you have been Scammed by Loan Scams?
Regardless of what the loan is, always take precautions to not fall for a scam. Read the entire agreement with the FINE PRINT. Understand the costs, the time period you have to clear the due, and your default penalties. Do not sign off a loan until you are fully aware of the terms and conditions.
Despite taking all the precautions, it is likely to fall for a loan scam. If you have unfortunately fallen for loan fraud, don’t worry. Our Crypto Victim Desk experts will help you get your funds back.