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Loan scams aren’t uncommon, unfortunately. In fact many of these unethical people target people who need loans the most, such as bad credit mortgage and then pull the rug out from underneath their feet. People with bad credit often can’t get a traditional loan so when a loan scammer offers a loan they might not read the find print and understand exactly what they’re signing. The elderly often are targeted for these scams, too.
Common Types of Loan Scams
By recognizing the top types of loan scams you’ll be better able to avoid them.
- Insurance Packing: When your loan comes with one or more types of insurance that you don’t need and don’t understand. This just raises the price of your payment and benefits their financial bottom line.
- Loan Flipping: When a lender encourages to refinance consumer mortgages. This keeps you in debt longer, which is good for them, and you’re charged for fees and points.
- Equity Stripping: The lender grants a loan that you can’t repay, based on the equity you have in your home.
- Bait and Switch: You’re shown very favorable loan terms when you apply but when time comes to sign the documents, higher charges and more fees are waiting for you because the policy has been changed.
- Deceptive practices: This is when the lender doesn’t provide accurate or correction numbers or information to muddy the situation.
- Non-traditional products: This is when your loan is set up so that it damages you and benefits them. Your loan could be set up with a monthly payment that doesn’t even cover the accumulating interest. This serves to only get you deeper in debt on a daily basis, which is what they want.
Some of these practices violate state law, and if you’ve been a victim of any of them you can file a suit.
Avoid Loan Problems
- Don’t use your home as collateral. It’s too risky and you could lose your home easier than you think.
- Don’t agree to anything with a too-high interest rate
- Don’t buy insurance from a lender without shopping around first.
- Watch the terms for refinancing. They might end up worse than what you’ve got now.
- Don’t sign anything that’s been given to you as a surprise! If the terms aren’t what you’d agreed on, do not sign the document
- Avoid bad credit mortgage rates when looking for a loan.
When you apply for a loan, be sure that you understand the amounts and every possible detail you can think of. If you’re even slightly unsure about something, by all means, ask. They must answer your questions clearly and with the intention of you understanding their answers.
Remember, many loan scammers use high pressure sales tactics, particularly during a bait and switch. If you feel rushed or pressured into signing loan agreements, simply do not do so and let the person know you won’t sign until you’re sure of what you’re signing. They should have no objection to a lawyer looking over the loan agreements before you will sign them.
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