Personal loans have increased dramatically over the past five years. And with the financial hardships that many faced during the pandemic, personal loans are a more important financial tool than ever.
Unfortunately, this increase in borrowing has led to an increase in scams. Fraud in the financial sector is not a new trend. According to data from the Federal Trade Commission, consumers lost more than $ 1.9 billion to fraud in 2019. With the other economic challenges people currently face, it’s more important than ever that people are able to recognize the signs a personal loan analysis.
How to shop for a personal loan?
When looking for a personal lender, you want to look at potential lenders and make sure that the companies you plan to do business with are reputable and trustworthy.
The Credible Online Marketplace is a great place to start. With Credible you can compare rates and lenders in one window – in addition, it’s 100% free!
5 things to do before choosing a personal lender
However, before you land on a lender, you will want to follow this simple checklist in order to save money and time. Here are five things to do before applying for a personal loan.
- Find information about the lender
- Make sure their website is legitimate
- Read reviews online
- Use government tools to control
- Shop and Compare Loan Rates
1. Find information about the lender
Before you pass on your sensitive information to a business, do some research. The company’s website is a good place to start. Most legitimate lenders include company information, leadership licenses, and more. You can also use an Internet search to see what information is available on other websites. If there isn’t a lot of information, it could be a bad sign.
Check out Credible’s partner lenders below. Simply enter the desired loan amounts and your estimated credit score to get started.
2. Make sure their address and website are legitimate.
You can tell a lot about the legitimacy of a business from its website. First, financial companies like personal lenders have to store a lot of sensitive information. If they don’t have a secure website, your personal data may not be safe.
You can also confirm that the address shown on the website is legitimate. If there is no website listed, it is probably a bad sign. Reputable companies usually publish their contact information for the benefit of customers and government agencies.
3. Read reviews online
Online resources make it easy for consumers to read the reviews of other clients before choosing a personal lender. Non-profit organizations like the Better Business Bureau track complaints and assess companies against the ethics with which they treat customers.
You can also read Credible’s full reviews of their personal lending partners. Credible has personally vetted each lender to make it easier for you.
4. Use government tools to control
Lenders must register in each state in which they operate. Your state’s financial agency can confirm whether a particular business is registered in your state. You can also monitor lenders by researching complaints or charges from or filed with the Federal Trade Commission and the Consumer Financial Protection Bureau.
5. Shop around and compare loan rates
When you are looking for a personal loan, it is important to shop around for the best loan rates and the best lenders available. By using a trustworthy source like Credible, you can find a list of legitimate lenders, find the best interest rates and use a personal loan calculator to see how much you can expect to pay.
5 warning signs of a personal loan scam
Don’t be the victim of a personal loan scam. These five warning signs can help you recognize and avoid fraud.
- Lender guarantees loan approval
- There is no credit check
- Lender requires upfront payment
- There is little information about the company
- The lender contacts you directly
1. The lender guarantees the approval of the loan
If a lender guarantees approval without a request, that’s probably too good to be true. Lenders typically check a borrower’s income, debt-to-income ratio, and credit rating before offering a loan. A promise of guaranteed approval can be a sign of a scam.
2. There is no credit check
Perform a credit check is a way for financial institutions to manage risk. Without a credit check, they have no way of knowing if they are lending to a high risk borrower. And if a lender isn’t worried about risk, there’s probably a reason. This could be a sign that the deal is a scam or that you are being offered a predatory interest rate.
3. The lender requires an upfront payment
Some fraudulent lenders ask for an upfront payment but never issue the actual loan. If you are working with a legitimate company, you will never have to hand over any money until the loan agreement is signed. Some lenders charge origination fees on loans, but these are not prepaid. Instead, your origination costs should come from the proceeds of your loan or be included in the loan.
4. There is little information about the company
Most reputable companies share a lot of information about their background, mission, and leadership right on their website. Perhaps more importantly, it should be easy to find information about a business elsewhere. If financial publications and consumer protection agencies do not know about the company, it could be a sign that it is not legitimate.
5. The lender contacts you directly
It’s probably a red flag if a business proactively contacts you with a loan offer. While some businesses use mail and email marketing as a means to promote their loan services, it is mass marketing efforts. A direct phone call from a lender is probably a sign of a scam.