Being able to apply for a loan over the Internet is an excellent convenience. However, there are thousands of websites offering online loans, with many of them taking advantage of unexpecting victims via various scams. Below is helpful info that will help educate you regarding the various types of loan scams that are out there.
Advance fee loan scams
Applying online for a personal loan is typically just as secure as applying at your local credit union or bank. Conversely, there are fraudulent websites out there that solely earn revenue by ripping people off via advance fee loan scams. This is the most common scam in the online lending industry. Nowadays, there is no such thing as a loan that is going to require any sort of insurance payment up-front.
The way this scam works is simple but slick. After applying at a frivolous loan site, you may receive contact via email or even phone indicating that you have been approved for your financing request, but that in order for your loan to fund, you are going to need to wire the lender ‘insurance' in good faith. They will request that you wire 'insurance' funds to them via Western Union, or that you obtain and load up a GreenDot pre-paid card. Typically several hundred dollars will be requested. As soon as they receive this money, they stop communicating with you and disappear. While there is little you can do once you fall victim, do save all emails, phone numbers and any other info you have related and forward to the police. You should also contact the FTC, and the Consumer Finance Protection Bureau by filing complaints with both.
Repayment Insurance
Often, lenders will try and squeeze as much profit out of consumers as they can. One way they do so is by trying to sell consumer products, i.e. loan repayment insurance. This type of insurance product insures your loan payments, making payments for you, in the event that you are unable to make payments because of illness, job loss or some other type of unforeseen situation. And while this may sound like a reasonable product, it is extremely expensive and usually not worth the cost.
Watch out for teaser rates.
A common bait and switch type of scam is when lenders market product for unrealistically low rates, sometimes even 0%. Remember, lenders are in the business of making money. So 0% doesn't even make sense. But, read the fine print carefully of these types of loans and you'll discover that you are being charged all sorts of hidden fees like closing costs, origination fees, extraordinary pre-pay penalties and so on.
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Representative Personal Loan Example: For a $5,000 36-month loan at an interest rate of 6.03% with a 1.11% origination fee of $55.50, you will receive a loan amount of $4,944.50 and will make 36 monthly payments of about $152.18 at a 6.78% APR. Total loan cost would be $5,478.48.