5 Loan Scams

Avoid Like Poison…

Short on cash? Need a small loan to tide you over? You’re not alone. Every day thousands of people walk a financial tightrope, and need a short-term loan to bridge the gap between bill-day and pay-day. But some of these loans can actually lead to financial ruin. Don’t become a victim of unscrupulous loan scams. Here’s important information you should know about five loans programs to avoid:

Scam #1: Advance Fee Loans. There are companies that prey on people with poor credit history. And for a fee, they claim they can find a lender who will approve their loan. A “red flag” should go up any time you see a request for fees “up front” for an application, processing a loan, or appraisal or credit reports. Any fees should be part of the loan.

Scam #2: Payday Loans. These short-term loans, ($100-$500) are issued against a borrower’s paycheck. The borrower postdates a check for an amount plus a fee. When the borrower is paid, the lender cashes the check. But here’s where it gets dicey: If the borrower can’t pay the loan back at the end of the loan period they hold the loan for another pay period, and tack on another fee. Fees can be as high as $20 per $100 loan.

Scam #3: Pawnshop Loans. These are short-term, quick cash loans
(average $75-$85), and are secured by personal collateral. Interest ranges from 2%-25% per month for 30-90 days. The collateral is sold if the interest and loan isn’t paid on time.
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Scam #4: Title Loans. Your car’s title is used to secure these loans (generally 30 days). The amount is determined by your car’s value. Interest rates vary from state to state, and can go as high as 30% per year.

Scam #5: High Loan-To-Value Ratio Home Equity Loans. This loan is secured by the equity in your home; however, the danger is that you can end up paying more than your house is worth.

Before considering any of these loans, talk to your own bank about a loan. If your bank turns you down, find out why and if there’s anything you can do. You may be able to put up collateral to secure the loan, or get a co-signer to agree to assume some of the responsibility for the loan.