Watch Out for Advance Fee Loan Scams
By LaToya Irby in Debt Relief
Anything that seems too good to be true probably comes with some type of catch. That’s exactly how things work with an advance fee loan. If you’re looking for money to pay a debt settlement offer or a loan to consolidate your debt, an advance fee loan will seem like a godsend. But, pay attention because these scams don’t always call themselves “advance fee loan.” You’ll have to learn the signs to avoid the trouble.
What is an Advance Fee Loan?
An advance fee loan is a type of loan that requires you to pay an advance fee or down payment on the loan before you actually receive the proceeds from the loan. They often guarantee approval regardless of credit history and sometimes even before you’ve made an application. What makes these loans a scam is that you typically never actually receive a loan. You pay hundreds or even thousands of dollars upfront and the loan never happens. The company disappears and you’re out of your hard-earned money.
How to Recognize a Scam
The companies offering these advance fee “loans” don’t call them advance fee loans; that would be much too obvious. Instead, you’ll have to look for other clues that the loan isn’t legitimate.
One of the first clues is that you’re guaranteed approval without ever making an application, having your credit checked, or revealing your income. No legitimate business ever makes such a guarantee without deciding whether it’s a worthwhile risk to loan you the money. Even preapproval offers from legitimate banks require you to go through an application process where you could still be denied based on your credit and other factors.
Another clue is if you’re asked for upfront payment to receive the loan. You shouldn’t have to pay a fee to get a loan. It’s especially suspicious if you’re asked to wire the fee or send payment via courier, which is one payment method scammers choose because it’s harder to trace back to them. Not only that, applicable law almost always requires lenders let you know about fees and interest rates upfront. You should have a chance to review any fees before you apply for the loan.
Research promises of government grants or bailout loans. To date, the government doesn’t have any type of grant specifically available for people to pay off their debts. But, if there was such a grant, either from the government or a private company, you’d probably need to write a proposal requesting the grant and specifying how you would use that money. Getting a grant is not generally an easy process and neither is getting a loan. Don’t be fooled by promises of easy money.
If you’re desperate for a loan and can’t get approved anywhere else, you’ll probably want to avoid the warning signs. You may not mind taking on a risky loan to help you out of a desperate situation. However, there’s a big difference between bad credit score loans that charge high interest rates and loans that ask you to pay upfront before receiving the funds.