The industry is plagued by predatory lenders and practices designed to trap vulnerable borrowers. As a borrower with bad credit, the options for loans are limited and usually not very good. Within the available loan option, as a smart borrower be aware of the reigning pitfalls. Be proactive at the beginning of your personal loan journey thus preventing trouble along the way.
Most common pitfalls and scams to stay away from:
â€¢ Roll over of the loan to another term | As many people have difficulty in repaying the loan within a short span of time, the loan usually rolls over for one more term thereby making the original loan more expensive. This may also lead you to a vicious cycle of debt. To avoid this mishap always ensure that you can repay the loan in its entirety on its due date.
â€¢ Astronomical APR
As a borrower with bad credit, you will be eligible only for pay day style short term loans and they usually have very high-interest rates (ranging from 230% and upwards) leaning on shark loan territory. Ensure to avail these loans only in true emergencies.
â€¢ Multiple fees structure
Especially online lenders levy a variety of fees like origination fees and various other range of fees. Always read the offer document carefully.
Check if the lending company is accredited by the BBB. The newer online ones are usually not. Many lenders do not offer secured loans.
Expensive insurance add-ons that ensure that the loan is paid back if you die or get disabled, are slipped in by some lenders.
â€¢ Upfront fees
It is illegal for lenders to charge you fees for just filling up an application form.
Lenders with the intention of scamming the borrower usually advertise approval of a loan without knowing your credit history, income, and personal information. This is not a legitimate lender – stay away.
â€¢ Uninitiated contact
Another tactic used by illegitimate lenders to lure vulnerable borrowers is by constantly getting in touch through emails and calls. This is another red flag.
â€¢ Name imitations
Disreputable lenders may use similar sounding names of legitimate lenders. If they have to borrow the reputation of the legitimate lender, it goes to show how unethical their practices are.
â€¢ Collecting personal information
Please provide your personal information only to reputed companies so as to avoid identity theft and another misuse of data.
â€¢ Undue pressure
Lenders may use scare tactics to pressurize you into making a deal before having considered all available options.