Are you strapped for cash? Maybe you just need a little extra cash until payday, or you are an entrepreneur looking for a last-minute loan. Don’t go swimming in shark-infested waters. In honor of “Shark Week,” Better Business Bureau serving Central, Coastal, Southwest Texas and the Permian Basin advises you to watch out for hungry sharks looking to prey on you through loan scams.
Most predatory lenders target new entrepreneurs or desperate consumers in need of immediate financial help. According to the U.S. Small Business Administration, it is easy to miss a scam when you are busy trying to get your business financed. The Small Business Association warns prospective business owners of “fake investors,” who are located overseas and require a steep fee in return for quick approval.
Payday lenders charge high interest rates, set unaffordable payment terms and use high-pressure collection tactics that can make paying off loans nearly impossible.
Advance-fee lenders charge an upfront fee and will “guarantee” you a loan despite your credit history. Also, chances are, you won’t get your money back. Real lenders, like banks or credit unions, check your credit history – even if your credit history is good.
In 2014, BBB received over 6,700 complaints nationwide regarding loans, loan servicing and small business loans. Most consumer complaints reported issues with contracts, billing or collection and sales.
If you are looking to take out a loan, BBB advises you to “keep your head above water” and be on the lookout for these red flags:
- The lender’s track record is poor. Consumers should review the BBB Business Review for any business before a transaction. A history of unanswered complaints, advertising issues or government action will let consumers know the company should be avoided.
- The lender requires an upfront fee.Legitimate financial lenders do not charge up-front fees to process a loan application. Beware of consultants, brokers and loans that require a fee up front and collect your money as a step towards getting investment.
- The lender uses high pressure sales tactics. Advance-fee loans can carry extremely high interest rates and have detailed information in the contract. Consumers should never feel forced to make a decision on the spot and should take time to get everything in writing before agreeing to the terms of the loan.
- The lender has little contact information. Beware of any business that only has an online presence and no physical address and businesses with no contact information beyond an email address or phone number.