Beware of “secured” loans with upfront fees

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No matter how much money you need for a loan, don’t overlook this big red flag. Companies that claim to “guarantee” loans without seeing your credit history are probably scams. These crooks charge an upfront fee to block a loan. But once you remit the payment, the “lender” disappears with the promised money.

Advanced commission loans are illegal in Canada. In Canada and the United States, it is illegal for businesses doing business over the phone to promise a loan and demand payment before delivering.

How the scam works:

You get an email or phone call, or see a flyer or ad online, offering you a good deal on a car, mortgage, payday, or other loan. The company may promise you a low “guaranteed” interest rate or tell you that you qualify for a special program.

There are many versions of this downside: mortgage refinancing, low cost government loans, student loan consolidation, special grants, or just an emergency loan to pay the bills. The catch is some sort of up-front charge, like a “processing fee” or insurance to get the loan or to lock in the low interest rate. Once you have remitted the payment, the “lender” disappears with the money.

Tips for spotting this scam:

  • Vague or unclear fees charged before getting the money. Fees are often charged for loans: application fees, evaluation, credit file fees. A real lender will display these fees prominently and take them from the money they lend you, but a fraudulent lender may try to collect them as a condition for you to get the money. Any upfront fees that you need to pay before getting the loan is a signal to start.
  • Avoid guarantees and unusual payment methods. Real lenders never guarantee a loan in advance. They will check your credit score and other documents before providing an interest rate and / or loan amount and will not ask you to pay any upfront fees. Fees are never paid through Green Dot MoneyPaks, iTunes cards, or transfer money. Unusual payment methods and payments to an individual are a big tip.
  • Do your research. Scammers try to trick you into pretending to belong to official or trustworthy institutions (including the Better Business Bureau or your current lender) or by pretending to be a known organization. Contact the agency directly to verify that the program is real. Lenders and loan brokers must register where they operate. To verify registration, in the United States, call your state’s attorney general’s office or your state’s department of banking or financial regulation. In Canada, contact the Office of the Superintendent of Financial Institutions.

For more information

Get more information by reading BBB’s loan advice.

If you’ve spotted a scam (whether or not you’ve lost money), report it to BBB.org/ScamTracker. Your report can help others avoid falling victim to scams. Find more information on scams and how to avoid them at BBB.org/AvoidScams. Subscribe to BBB’s weekly scam alerts.

To find out how to protect yourself, see “10 Steps to Avoid Scams”


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