Friday, February 28, 2020

Credit and Loan Scams. In debt? Many will help you get into more debt!

When I mention "loan" in this post, I am not referring to an auto loan or mortgage on a house.  Although a few auto loan companies operate with the same mentality as those I mention below, most are legitimate businesses.

I am going to focus on the credit and loan companies that prey on those with sub-average, or "poor", credit scores.  You know who are by now, or should.  Finding your credit score these days is cheap if not absolutely free.  You really have no excuse to not know your credit score.  Just make sure you obtain it from a reputable service.



Know Your Credit Score


So, you have a "poor" credit score which varies from lender to lender but is typically 600 and below.  You now want to consolidate your past "poor" financial decisions or buy a used car or go on vacation (you can afford to do that, right?).  For whatever reason, you do not have enough cash up front.  It is time to apply for credit - a credit card, a personal loan, line of credit, etc.  You find a lender online who quickly, in mere seconds, retrieves your credit score.  Ah ha!  540 which is poor.  You have clearly made some bad financial decisions in the past or a life-changing issue came up - loss of income, major emergency expense - and you could not pay or pay-off your credit/loan balances.  When you default on a loan or other type of credit, this affects negatively on your credit score and the score plummets.  The more outstanding, unpaid, balances you have, the lower your credit score.  Major creditors and lenders will turn you away, shut their doors and lock them.  To them, you have no worth.  You continue looking and eventually find lenders who "welcome" those who have bad/poor credit.  Maybe these lenders understand that you are trying to get on your feet again or maybe you made the mistakes in the past and are now financially secure enough to make those (new) payments and satisfy a loan.  When you pay off a loan or at least make on-time payments, your credit score will increase and eventually make you more appealing to those major creditors and loan companies that previously turned their backs on you.  But choosing a bottom-of-the-barrel, down-on-your-luck lender or creditor may come with a price if your credit score is bad/poor.  And in some cases, this new credit could come with a very hefty price.

With bad or poor credit, don't ever expect the low advertised interest rate - the amount the lender charges in addition to your loan amount.  Don't be fooled by ads claiming "Bad credit?  Get a loan here for a little as 3.9% APR".  It will not happen.  Those low interest rates are granted to people who are financially secure and have good/great credit.  Which is kind of ironic:

You Have Good Credit


A person has great credit, stable employment, and living easy.  This person applies for credit and gets the lowest interest rate, sometimes 0% or that 3.9% as advertised.  And, their credit limit is higher.  They make their payments on time of course because they can.  Let's say, their monthly payment is only $23.  Anyone can do that, right?

You Have Bad Credit


A person has bad credit, just got a decent job, and lives paycheck to paycheck or has some room left over at the end of the month for "extras".  This person applies for credit and gets a higher interest rate.  I have seen interest rates from 27% up to 480% or more!  Their credit limit may be lower as they come with more risk.  Could this risk have been created by the lending companies to begin with?  The monthly payment is $70 or more for a person with a bad credit score - for the same loan amount received by the person with good credit.  Does that make sense?  Creditors make more from people with bad credit!  Creditors are not in business to help those in serious financial need.  Otherwise, the interest rates would be reversed.  But times are desperate and creditors rely on suckers to agree to these outrageous rates.  To their defense, creditors are lending to high-risk people who may, hopefully, payback their loans.  But creditors are creating the high-risk themselves with these interest rates.

Up Front Payment Loans


Another type of loan, which I laugh at, requires payment of the credit limit up-front.  Example: You are approved for a $500 "loan", the word is used to make you feel like you accomplished something and were approved by a lending company.  Once your account is open, you have to DEPOSIT $500 into your account before you can use the loan or credit card.  How stupid is that?  If I can send you $500 now, why do I need your so-called "credit" or "loan"?  Of course, the "lender" has to make something so you are charged INTEREST!  It is kind of like you give me $500 of YOUR money and I will hold onto it and give you up to the $500 amount when you need it.  Plus, as an added bonus, I am going to charge you 24% interest so you have to pay me quite a bit to hold onto money you already have.  I smell a scam there.

The Secured Loan


For real risk-takers, there is the "secured" loan.  If you have assets, things you own of value such as a house or car, you can get a loan or line of credit.  You have to agree to use the asset as collateral.  If you default (don't pay) the loan, the creditor assumes ownership of the asset.  Yes, they will take your car or your home.  You told them they could take possession when you applied for this and accepted the agreement.  These types of loans are approved more, when you have a valuable asset, but are very risky for you if you are not financially stable.

Credit & Loan Scams


There are many credit card and loan scammers out there.  Many of them operate in the U.S. or have offices and addresses in the U.S. but operate, actually, in another country.  How do you avoid being "taken" by a scam?  Do your own research.  I cannot emphasize that part enough:  your own research.  Do not rely on reviews on the creditor's websites or on "affiliated" sites.

An affiliated site will usually rank creditors - "The lowest rate you will see", "The best company for people with bad credit".  You found them online by searching (Google) and they paid to be at the top of your search for a reason.  An affiliated site might list 5 or 10 creditors of various rankings and stars but they are affiliated with one, maybe two of "the best", and they want you to click their link to get your credit offer.  Their link probably includes a code that, when sent to the lending company's website, refers to the phony review site.  The lending company then pays for this affiliations.  If someone paid me extra to send business their way, of course I am going to say good things about them!  That's how it works.

Research as much as you can and try to find unbiased reviews.  Never EVER decide based on reviews, quotes, happy faces, etc., on the lender's website.  Do not take their word for it. Search social media, search reputable financial industry websites and finally search the Better Business Bureau.  I know some people do not trust the BBB, but every bit helps.  Get you own independent impression of this lender/creditor BEFORE you sign or agree to anything!  And, do not offer your banking information prior to your thorough research being complete.  Yes, many lenders will ask for bank routing and accounting numbers BEFORE you have even been approved....RED FLAG!  I would NEVER give that information to a stranger.  Creditors/lenders are still strangers!

Stay away from ultra-high interest rate lenders.  Completely avoid them at all costs.  It will cost you the most.  I saw a loan offer with a 480% interest rate.  You will never pay that back.  Several independent reviews remarked:

"When I first called them, I was given a decent monthly payment amount.  After that first month, my bank account was charged FOUR times the monthly payment amount.  When I called the lender, I was told that was the amount plus interest."  (definitely a scam)

"They told me the loan would be payed off in 9-months. After talking with a financial planner, I was informed it would take over 4-years to pay this off."  (another scam)

"My loan for $1,000 will end up costing me over $5,000 by the time it is payed off.  And I am paying more than the minimum!" (good idea to pay more than the minimum. But, another scam)

"When I got this credit card, they charged me $99 when I activated it!"  (This is actually common.  Even reputable credit card companies and lenders will charge an annual or startup fee for opening the account.  It's their way of saying 'it is a pleasure for you to do business with us'.  This is usually not a scam - read the fine print and terms of the credit card or loan.)

Finally...


Loans come with a lot of disclaimers and payment/interest charts.  Read all of them thoroughly.  Read the fine print.  Read between the lines.  Know what you are getting yourself into.

If you already have a checking and/or savings account with a bank, start there first.  They already know you and you, hopefully, can trust them by now.  They already have your money!  Membership banks know your balances, spending habits, paycheck frequencies and if your account is already bad or doing ok.  If you have been with them for a good amount of time, you have a good chance of securing a decent loan or line of credit with them.  Credit unions are best as they generally provide low, or very competitive, interest rates.  Your bank wants to keep your business.  Take advantage of their resources first.  If they say "no", then start looking at 3rd parties.

Again, more than anything - I cannot stress this enough - know what you are getting yourself into.  Shop around.  Compare rates.  Do not give your banking information during the application process.  Once they have your account information, your bank and financial worth is open season for them.  Never, ever, trust a credit or lending company that doesn't check your credit history!

Once you let a credit/loan site know you are looking for money, you may get offers from other parties.  Be careful of these as well.  Once your information is shared on one site, they may have sold or given the information to other lenders and you will be spammed daily with credit offers, most of which are scams.  Some lender sites, themselves, will Email you and, in many cases, call or text you daily - and multiple times per day - until you respond.

If you cannot find the lender on social media or locate much information about them on the internet, that is a red flag as well.  But, just because they have a presence on Facebook doesn't make them reputable either.  Facebook is becoming more and more synonymous with 3rd-party advertisement scams and fake business pages and groups.  I rarely, if ever now, trust an advertisement on Facebook - but that is another article I am working on.

Before doing anything, get your credit score and know what it is before reaching out even to your bank.  Use services like Experian, TransUnion, Equifax and Credit Karma.  Do not make too many inquiries for your credit score as this may actually lower your score!  Also, do not apply with too many lenders/creditors as that can adversely affect your credit score.  It also looks bad and could be problematic if a potential lender finds you have several credit applications submitted or lender inquiries in your credit history.

Again, before signing and approving anything with any lender or creditor, know what you're getting into (read everything)!

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