Debt Free

If you’re going after a bad credit loan, here are some bad credit loan scams you should be aware of. It’s unfortunate, but a fact of life that your credit may be in the dumpster. If you’re trying to get a loan, there are scam artists and disreputable businesses out there that will prey on you because they are well aware you have limited credit options. The better your FICO score and credit history, the more options you’ll have and the better rates you will get when you’re getting a new loan. Conversely, you’ll be penalized with higher rates and fees on a new loan when your credit is bad. 

Recognizing you are going to pay more for a loan if you have bad credit, how do you know when you are being scammed? Is it a scam, or are you just getting the normal fee and interest rate increase you can expect because of your bad credit? Here are some common tricks tried on loan applicants with bad credit. Do any of them look familiar to you? In no particular order:

Bad Credit Loan Scam #1 - The Advance Fee Loan

If you need a loan, why would you pay for it up front? Seems like a bad deal to me, but they know you may have few options for new credit. This scam works when you are guaranteed a loan if only you pay an upfront “processing” fee. The fee ranges from a hundred to several hundred dollars. The really bad deal is that, in most cases, the crook just disappears with your advance loan fee.

This scam is tried not just on individuals, but on small businesses. The scam artists know that many business owners will go to great lengths to try and save their businesses. They prey on this. The bottom line is never send any money to a loan organization as a pre-condition to getting your loan.

Bad Credit Loan Scam #2 – Information Mining Scam

In this scam, you identity and bank information is stolen right out from under you. It works like this: Your credit is bad and you are approached for a loan by a legitimate sounding company. In some cases, the crooks will even appropriate a legitimate financial institutions logos and other official looking paperwork. You are faxed a “loan application package”.

As is typical for loan application packages, it contains a request for all you private info, such as bank account numbers, addresses, balances and your SSN, birthdate, and address. If you send this back, you are screwed. Now someone in the Ukraine or Bulgaria has your most secret information. They aren’t after your credit, it’s bad enough to be of little or no use, but they do have your bank account information, and soon there’ll be no money in your account, either.

Bad Credit Loan Scam #3 – Contractor / Home Improvement Loan Scam

You’re credit’s hovering in the low 600’s and you weren’t really thinking about remodeling the kitchen and adding on a few hundred square feet to your humble abode, but the guy at the door was so persuasive. “You’ll increase the value of your house”, he claimed. The roof needed some work and the floors were terribly worn and creaky, so you put aside that nagging little voice and signed a contract to get he work done. The guy was really nice, and he even said he’d help get you financed using the large amount of home equity you’d amassed over the years.
 
This has grown increasingly common over the years for people with very low incomes that own their homes outright. Your credit doesn’t matter because they’re really after that equity in your home. In many cases the work will be performed in a substandard fashion, if you’re lucky(?) enough to get it done at all. In many cases the home improvement loans made by these operators are at interest rates that can be as much as 10% above market value. The contractor is just a foot in the door to your home equity. These lenders are playing you to get to your equity. They rather hope you lose your house, actually. One finance company, Resource Finance in Boston actually had 80% of the homeowners in their loan portfolio have their homes foreclosed upon.

Don’t let any of these loan scams happen to you. Hopefully, you can work your up to being debt free, and not be so concerned with loan scammers plying their trade on our nation’s highways and byways. Just remember, don’t answer the phone during dinner.