A Look at Loan Scams
If you've ever applied for and been refused credit during your adult life, the chances are you've had mail through your letterbox informing you that you've been pre-approved for a loan. At first glance these offers seem legitimate, but are they?
Usually, the offer will state, in bold letters, that you are approved for a loan of any amount from £500 up to about £10,000. All you have to do is phone the company and they will process your application, putting the money into your account within the week.
Sounds too good to be true, doesn't it? Well, it usually is. In reality this 'loan offer' is a type of scam, preying on those who find it difficult to get loans through legitimate means such as a bank or licensed lender. For a start, the number you have to call will usually be a high-rate number, and you will be left holding long enough to make a dent on your phone bill.
Once you get through, you are told you can have your loan but you need to pay an 'administration fee', sometimes as little as £50 but can be much more. This, apparently, covers the cost of the paperwork needed to set the loan up and send it to you. It may also be referred to as payment insurance or the first repayment. Either way, you're asked to send money upfront.
Now, these can go one of two ways. Some companies will just take your 'admin fee' and run, leaving you with documents bearing false names or addresses of a fraudulent loan company, and no loan. Others act as loan brokers, who promise to find you a loan with a lender who will accept your less-than-perfect credit score. The admin fee is meant to cover the cost of them making applications in your name. While this sounds slightly more plausible than the first instance, it's actually no guarantee that you'll get your promised loan. The 'broker' often takes an inordinate amount of time finding a loan for you, in the hope that you'll forget about it. Then, they can keep your 'admin fee' and move onto the next unlucky victim.
So how can you avoid being a victim of one of these scams? It's quite simple; don't take out a loan with any company if you haven't applied to them directly. Also, never trust any company who asks for a fee upfront; genuine lenders won't do this. Finally, if you know you have bad credit, work on getting your score better.
If you need a small amount of money, up to £1000, payday loans might be an answer. While high interest, these loans are repayable within a month so there's less immediate risk. If you're a homeowner with poor credit, secured loans could be an option, but your home will be at risk if you miss payments.
About the Author: J Tillotson is a financial author in the UK
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Print Article | Download PDF | 11 views | Sep 23 2008
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