If you are looking to take out a personal loan for reasons like debt consolidation or home improvement projects, it is important to make sure that the lender you are trying to get money from is legitimate.
Scammers may try to rip you off by asking you for money up front or by promising secured loan approval. They may even masquerade as a legitimate business and offer lower rates or fees than advertised by the real lender on their website.
However, you have many options to protect yourself from personal loan scams. Here are four ways to recognize and avoid scams so that you can borrow money without worrying.
Before you think about taking out a loan with a business, the first step is to make sure that it is legitimate. Read reviews on external websites, check out Better Business Bureau Note, and ask your friends and family about their experiences with the company.
If you are looking for comprehensive lists that compare many lenders, check out our guides to the best personal loans online, the best small personal loans, and the best personal loans for bad credit.
“First and foremost, understand interest rates and fees,” Todd Nelson, senior vice president of strategic partnerships at Lightstream, Insider said. “A lot of times consumers feel that if the lender hasn’t fully explained the rates and fees, they may have been taken advantage of. Homework is always very important, and any reputable lender will be very outspoken about their rates. and the fees are. “
Check that the rate advertised in your offer matches the rates advertised on the lender’s website. You may need to fill in some information to see which rate you are prequalified to receive.
Also consult the fees indicated on the offer. Some lenders don’t charge any fees, but others will charge setup fees, late fees, or prepayment penalties. It is therefore important that the fees offered match those listed on the company’s website.
A classic tactic used by many crooks is to offer you a loan with the caveat that you are sending them money up front. They may promise to send you funds after they receive that first payment.
“Avoid anything that requires you to send money to the lender before there is some sort of transaction,” Jim Houston, general manager of auto loans and finance at JD Power, Insider said. “Reputable lenders won’t say, ‘You send me money now and I’ll send you later.’ It does not work like that.”
Some lenders may charge an administrative or origination fee when you accept a loan, but these are usually taken from the loan proceeds and will only affect the total amount you receive.
Almost all lenders will have some sort of screening process before they can offer you a loan. Minimum credit scores vary among lenders, but most lenders take your credit rating into account when deciding whether to approve you for a loan. Many companies will generate a flexible credit application to show you personalized rates.
If a lender asks for minimal information and guarantees approval, regardless of your creditworthiness or other financial factors, beware. Some common information that a real lender may ask for includes:
- Last name
- Reason for requesting a personal loan
- Contact details, including your address, phone number and email
- Date of Birth
- Social Security number
- Employment status
- Whether you are a tenant or owner of your home
- How much you pay for housing each month
- Individual income
- Household income
“Legitimate lenders are going to go through an underwriting process, especially for personal loans, because they are unsecured debt,” Brian Walsh, CFP and senior director of financial planning at SoFi told Insider. “The approval decision will be based on the lender’s belief that the borrower is actually going to pay them back. They should look at things like credit score, payment history, and debt-to-income ratio to make an informed decision. . Places that wouldn’t do that are a huge problem for me. “
Legitimate lenders use a variety of methods to encourage you to borrow from them. You may see an advertisement online or receive an email from a lender, but not all businesses use each of these methods. So, if you receive an email from a lender offering a loan, it is possible that a scammer is using a real name of a business to contact you.
For example, Lightstream will never make an unsolicited call, Nelson said. Contact each lender’s customer support number or email and confirm that the method by which you received your offer is legitimate.
Houston said bogus offers are less common with personal loans than with other types of loans, such as auto loans. But scams always happen, so know how to recognize them to avoid giving your personal information to a bogus company.
Ryan Wangman is a Review Officer at Personal Finance Insider and reports on mortgages, refinancing, bank accounts, bank reviews, and loans. In his past writing about personal finance, he wrote about credit scores, financial literacy, and homeownership.
