The Internet has made it fast and easy to get online loans. But with the ease of getting loans entirely online comes the potential for ill-intentioned individuals to scam people.
Doing one’s due diligence is critical to avoiding costly and embarrassing scams when looking for loans online. Prospective borrowers should keep these five tips for spotting scams in mind when loan shopping.
1. Getting Approved for a Loan Without Applying
Scammers often target people experiencing financial trouble with unsolicited loan approval offers via email or phone. They hope that people will be desperate enough to take easy free money.
The thing is, a lender will never approve someone for a loan unless they formally apply and, depending on the lender, either submit to a credit check or provide proof of income.
Now, this is different than pre-qualification offers people might get in the mail. Those are legitimate and legal and only involve a soft credit check. Lenders send those out to try and reach out to borrowers that they believe would be good applicants.
2. The Lender Isn’t Licensed Locally
The Federal Trade Commissions (FTC) mandates that lenders register in all states where they conduct business. When suspicion of a scam arises, check the lender’s website to see if they claim they conduct business in the state they’re offering loans in.
If they don’t list that state — or any state — that lender may be a fraud.
Borrowers can also contact their state’s attorney general, Department of Banking or Department of Financial Regulation to verify if a lender is real or fraudulent.
3. The Lender Asks for a Fee Before Approval
Legitimate lenders cannot and will never ask borrowers to pay a fee before approval. If a lender does so, it’s a scam — they intend to take the money and run.
That said, many fees after approval are legal and normal. These include fees like origination fees, mortgage appraisal fees, and late fees.
4. The Lender Guarantees a Loan with No Proof of Ability to Pay Back
Many lenders check a borrower’s credit before approving a loan. Others will look at alternative proof of ability to repay, such as pay stubs or bank statements.
They do this to feel relatively confident that borrowers have the means to pay back their debt.
So if a lender says they’ll give someone money guaranteed without asking for a credit check, pay stub, bank statement or another form of proof of income, they may be a scammer trying to reel you in.
5. Look Out for Online Complaints
Lastly, borrowers can check online reviews and complaints to help verify their suspicions of a potential scam.
Trustpilot is an excellent place to look for customer reviews. The Better Business Bureau – or the BBB for short – also has a scam tracker feature people can use to search and report scams.
The BBB also rates companies on an A-F scale. A+ companies have excellent reputations, while F companies are often best avoided.
Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: 5 Tips to Spot an Online Loan Scam