With the holiday season approaching, how to avoid fraud should be at the top of every consumer’s shopping list. Today’s world of online banking has simplified borrowing money. Yet, the new technology has been combined with old tricks to make it easier for scam artists. Financial scammers prey the most on people who have the most to lose. They do not discriminate by age or class, ethnicity or religion, only on the uninformed. Individuals seeking loans around Christmastime are particularly vulnerable.
With that in mind, here are 5 types of frauds and scams related to consumer lending to be aware of this Christmas season:
1. The Financial Trap
Avoid financial traps. Just because it’s not illegal doesn’t mean it’s not a scam. Financial traps are short-term loans at high interest rates with disastrous consequences upon default. Something along the lines of a pawn shop loan, but worse. The financial trap allows lenders to use something of value you own, say your car title, as collateral for borrowing. With average interest rates at 25% (that equates to 300% APR), to be paid back in 30 days, plus administrative fees (sometimes upward of a $100 or more), it’s most likely your car will be repossessed. On an $800 loan you must pay back $1,000 plus fees in thirty days.
2. Upfront Fees
Never pay upfront fees for any ‘service.’ Paying an application fee or document fee before the money or service is provided is a warning sign that you are being scammed. Lenders may ask you to pay a fee or a tax in advance for things like debt relief, credit and loan offers, or mortgage assistance. If you do pay the fee, they will probably take the money and disappear.
3. The Credit History Problem
Your personal information is being gathered—your social security number, date of birth, bank account, address, and the like can be used for identity theft, accessing your bank account directly, or the information is sold to other unscrupulous lenders. The first thing any legitimate lender will do is run a credit check on you to determine how much of a loan can be made to fit your budget without furthering your financial stress. Make sure you trust your lender!
4. Payment Methods
Consider how a loan is to be paid. One warning sign is wire transfer requirements to pay fees, especially if the transfer is to an individual’s account or address, not an institution. Wiring money through Western Union or MoneyGram is another sign of scam because it’s near untraceable and impossible to get your money back.
5. The Phone Imposter
Whether a loan offer comes as a text, a phone call, or an email, it is a sure sign that scam artists are working an angle. Phone offers for personal loans are first and foremost, illegal. Loan offers must be unsolicited and in writing. These offers will often come from someone pretending to be a representative of a company or institution you trust, like a government official or a local company you have done business with. Related to this, especially around the holidays, are charity scams. Never send money or give out personal information in response to an unexpected request.
There is an old saying: ‘If it sounds too good to be true, then it probably is.’ Remember that before accepting any loan, ask questions and do a little research. Lenders and loan brokers are required by law to register through the Attorney General’s office or Department of Banking or Financial Regulation in your state or states where they do business. Look them up! Don’t hesitate to Google the lender or the type of offer or loan being tendered. In a matter of minutes, if there is a scam, you’ll find it, and the simplicity of the scheme will amaze you. Finally, read the fine print, understand and comprehend the total cost in interest and fees you’ll have to pay back, and above all, the penalties you’ll suffer if you default on the loan.