Educational Consumer Tips

Advance Fee Loan Companies

Author: Better Business Bureau
Category: Finance

If you need a loan but think you won't qualify, it is tempting to look for other sources for the money you need.  It is easy to be tempted by the many ads and websites that guarantee loans or credit cards, regardless of your credit history.  The most important thing to remember is that legitimate lenders never "guarantee" or say that you are likely to get a loan or credit card before you apply, especially if you have bad credit, no credit, or a bankruptcy.

The Federal Trade Commission offers the following signs of an advance fee loan scam.  If you come across any of the following issues, choose another company.

1.  A lender who isn't interested in your credit history.  A lender may offer loans or credit cards for many purposes - for example, so you can start a business or consolidate your bills.  But one who doesn't care about your credit record should worry you.  Ads that say "Bad credit? No problem" or "We don't care about your past.  You deserve a loan" or "Get money fast" or even "No hassle - guaranteed" often indicate a scam.

Banks and other legitimate lenders generally evaluate creditworthiness and confirm the information in an application before they grant firm offers of credit to anyone.

2. Fees that aren't disclosed clearly or prominently.  Scam lenders may say you've been approved for a loan, then call or email demanding a fee before you can get the money.  Any up-front fee that the lender wants to collect before granting the loan is a cue to walk away, especially if you're told it's for "insurance," "processing," or just "paperwork."

Legitimate lenders often charge application, appraisal, or credit report fees.  The differences? They disclose their fees clearly and prominently; they take their fees from the amount you borrow; and the fees usually are paid to the lender or broker after the loan is approved.

And if a lender says they won't check your credit history, but wants your personal information, like your Social Security number or bank account number?  Go somewhere else.  They may use your information to debit your bank account to pay a fee they are hiding.

3. A loan that is offered by phone.  It is illegal for companies doing business by phone in the U.S. to promise you a loan or credit card and ask you to pay for it before they deliver.

4. A lender who uses a copy-cat or wanna-be name.  Crooks give their companies names that sound like well-known or respected organizations and create websites that look professional.  Some scam artists have pretended to be the BBB, a major bank, or another reputable organization; some even produce forged paperwork or pay people to pretend to be references.  Always get a company's phone number from the phone book or directory assistance, and call to check they are who they say they are.  Get a physical address, too; a company that advertises a PO Box as its address is one to check out with the appropriate authorities.

5. A lender who is not registered in your state.  Lenders and loan brokers are required to register in the states where they do business.  To check registration, call the Virginia Bureau of Financial Institutions at 1-800-552-7945.  Checking registration does not guarantee that you will be happy with a lender, but it helps weed out the scam artists.

6. A lender who asks you to wire money or pay an individual.  Don't make a payment for a loan or credit card directly to an individual; legitimate lenders don't ask anyone to do that.  In addition, don't use a wire transfer service or send money orders for a loan.  You have little recourse if there's a problem with a wire transaction, and legitimate lenders don't pressure their customers to wire money.