Going online to borrow money is a quick and convenient way to handle a financial emergency, especially if you need help covering unexpected auto repairs or medical expenses when your credit score isn’t the best.
Unfortunately, some online direct lenders see your bad credit score as an opportunity to lock you into challenging terms at high rates.
To make sure you don’t get tricked into borrowing money from the wrong kind of financial institution, here are four red flags that an online loan is a scam.
#1. You Can’t Find the APR
APR, short for annual percentage rate, includes all costs associated with borrowing, including fees and other charges on top of your interest rate.
Legitimate lenders have to disclose the total cost of your loan before you sign a contract. It doesn’t matter what kind of loan you’re looking for — whether you’re dealing with direct payday lenders or a mortgage broker. This rule applies to all lenders in the states, whether they’re based out of Alaska, Idaho, or Wisconsin.
It’s part of the Truth in Lending Act (TILA), so any lender that doesn’t share its full costs breaks the law, including mortgage brokers, payday advance lenders, and anything in between. A lender that doesn’t share APR doesn’t want you to know how much your loan will cost you.
#2. They Aren’t State Certified
In addition to TILA, there are state-specific lending laws that online direct lenders must follow. Financial institutions must meet these policies before legally operating as lenders, even if they only offer online loans.
That means if you live in Idaho, for example, you should search out the best installment loans Idaho has to offer. You’ll want to find a lender of installment loans in Idaho with the right accreditation to offer funds in this state.
If a lender can’t prove they have this certificate, they aren’t playing by the rules.
#3. Guaranteed Approval Offers
Guaranteed or automatic approval may seem like you’ve hit the jackpot when you have bad credit. But guaranteed approval is cause for suspicion.
Without checking your credit, there’s no way for these financial institutions to know if you can handle your online loan. Because they’re assuming a lot of risk by going into this agreement blind, they can justify costly rates and short terms.
#4. Advance Fees
There may be a lot of fees involved in borrowing money, but when you’re asked to pay them is a crucial detail you shouldn’t overlook.
It’s a cause for alarm if you have to pay a fee before you even get your funds. If a lender says you have to send them money to unlock your loan, make a run for it. It’s fraud, plain and simple.
Legitimate financial institutions will only ever ask you to cover these fees once you’re in repayment, and they’re usually bundled into your installments.
Don’t Take These Warnings Lightly
If a financial institution exhibits any of the red flags outlined above, move onto the next one. There are plenty of responsible online direct lenders that care about your financial health — you just have to find them!