Legitimacy in Loan Lending – Avoiding Loan Scams & Non-Transparent Lenders
The pain of this situation can be exemplified by a single mother applying for a loan to pay for her son’s surgery which isn’t covered by their insurance, while her next pay day is 10 days away. Let’s say she has no significant savings. A few days after her pay day, she is due to pay the usual bills too. A false loan broker charges her 20% of the loan amount upfront which she, in a state of hurry, panics and succumbs to, hoping that the entire amount is on its way. The broker also has mislead her into revealing sensitive information that a legitimate lender never asks. Finally, the loan amount never arrives and the broker has just changed his contact details and is untraceable unless she pays investigators to hunt him down, for which she has no money left. To her misfortune, she already had next to no funds, was in a need of more, and has lost a major part of what she had, and the surgery is no longer manageable. To add to this, the surmounting bills are all stacking up to pull her into a vicious circle of debt.
This isn’t a story that would never happen. Since the time that we know money lending exists, we also know that fraudsters do. Governments of all countries continuously work towards eliminating room for such traps in the system, but the growing and dynamic markets would always be subject to little flaws that fraudulent individuals or companies might try and capitalize on.
Nonetheless, as fraudulent lenders keep cropping up and improvising their tactics to survive, there happen to be some tell-tale patterns in their ways of working that can help people stay safe while dealing with an entity in the loan lending market. We throw light on few of the practices that we believe can keep you safe and away from potentially illegitimate lending practices or lenders.
Signs that can indicate an Illegitimate Lender
- Requesting a Deposit for a Loan: Perhaps the most common form of loan scam is one that asks for some sort of an advance fee. According to the FTC, many people being turned down by banks and other institutional lenders, get tempted and fall prey to such malpractices. It is however important to note that this is one of the biggest red flags – when you are looking for borrowing money, you shouldn’t have to deposit money for that.
- No Online Presence: In today’s scenario, if a web search of a lending entity yields no result that matches their profile, and you can find no genuine reviews online of their services, it is a strong warning sign that they aren’t a registered entity and can easily disappear at any time.
- Offering an Installment Free Period:At times, a reliable and established bank may offer the first month’s installment free, implying that your payments start on the next month. Nonetheless, the number of installments you pay, and the final principle amount you pay, shall be adding up to the actual principle amount that you borrow. If however, you find a direct lender or any other lending entity claiming the existence of such an offer or an offer where one whole installment just never needs to be paid, it is probably too good to exist and you need to take a very close look at this.
- Demand for a Pre-Paid Credit Card: Another demand that no legitimate loan lender would make, is for providing them with a pre-paid credit card as a form of loan security/collateral. If you’re asked for any such thing, we suggest you to simply look elsewhere for your loan.
- Demand for Passwords:While it is absolutely essential to keep your personal information safe – from being selective about what you share on social media to making strong passwords and changing them frequently – it is definitely a red flag if anyone asks you to share any passwords, be it related to banking or not. Your passwords are exclusively yours and if a lender or anyone pretending to be a lender asks for any password (which include OTP/One-Time Passwords), it is highly unlikely that they are working legitimately.
- Non-Transparency of Fee:Are you finding it hard to ascertain how much your loan would cost you? Is an APR or the interest rate of your loan not clearly being specified to you? All loan lending entities are required by the law to clearly disclose the fees and interest rates applicable. If this isn’t the case, it is advisable to stay away from the lender.
- Non-Secure Website:If the “lock” symbol is missing before the URL of your lender’s website in the address bar, or if you see that the web-address starts with “http://” and not “https://”, your data is not being protected under the SSL protocol that is very important. It is generally unsafe to share any personal data on such a website and if a lender’s website is missing this security feature, you have a strong red flag against dealing with the lender.
- Missing Contact Details:Are you able to contact your lender via phone easily and also able to see a registered business/office address? If not, it is likely that the lender is choosing not to be easily traceable and this is yet another red flag for you.
- No Accreditations and Registrations:When borrowing money, it is safe to look for company/lender registrations. If you deal with a direct lender, we suggest to look for the “Accredited Business” badge provided to accredited businesses by the Better Business Bureau (BBB).
Further Reading
If you’d like to learn more from us about this topic, you could find more sources of information on our website, by following these links:
References
1. Advance-Fee Loans: FTC Consumer Information
2. Keep your Personal Info Safe – Forbes