Financial difficulties can strike when we least expect them. Even financially stable individuals might find themselves in a tricky situation that will end up with a bad credit score. This is where the bad credit loans step up to help those who need funds but don’t have a perfect credit score. A bad credit loan is a personal loan that isn’t covered by collateral, meaning that you won’t lose your car or house if you fail to make payments. Hence, bad credit loans are often the only way out.
However, the popularity of bad credit loans has resulted in the appearance of scams. Unscrupulous people try to take advantage in desperate moments resulting in fraud. In this post, we discuss more on how to avoid those scams.
What are bad credit loans?
A bad credit loan is a fixed-rate loan intended for borrowers with less than perfect credit scores. It is important to note that these loans aren’t supported by collateral, meaning that you don’t need to risk losing your property.
A bad credit score is considered to be in the range of 200 to 629 on the FICO scale. Since there is no collateral, the lender will assess your credit report, credit score, and DTI ratio. The payment terms usually range from one to five years. However, have in mind that the personal loans for bad credit often come with high-interest rates.
The rising popularity of bad credit loans
Bad credit loans are popular due to their advantages. You aren’t required to justify the purpose of taking a loan. Whether you need to cover other debt, have a large purchase, or an unexpected expense, you aren’t limited on using the funds. Also, the payments are reported to the credit bureau, meaning that this loan will help you build your bad credit score if you make payments on time.
What are bad credit loan scams?
If you are interested in obtaining a bad credit loan, be aware of the existing scams on the market. Bad credit loan scams are suspicious businesses that want to take advantage of the customer’s financial situation.
They know that people who have been rejected for a loan are vulnerable and can be taken advantage of. Usually, they offer a quick solution to people’s problems and can be found only online. They don’t have a physical address or establishment indicated on their website.
Scamming businesses have two objectives: stealing money from you in the form of high interest or stealing your data. In most cases, they claim that they offer free money. However, the loan comes with hefty fees, high interest rates, and terrible consequences in the case of failed payments. Or, they might try to steal your personal information and use it for fraudulent activities.
Different types of scam
When you are in a desperate situation, you might feel pushed into a wrong decision. However, make sure to think before making a final choice. These are the most commons scams that you should keep an eye on:
If a lender asks for money before lending you money, this can be a clear indicator of a scam. They will trick you into taking a loan only if you pay their upfront fees. The lender will try to hide these fees like processing fees or administration costs. If any business tries to take money before giving you money, don’t work with them.
Legit lenders will never ask for money upfront. They do require you to pay fees, but these costs will be calculated to your balance and never be required upfront.
No interest in your credit score
Every legit business would be interested in checking your credit history to get a grasp on your financial situation. They use this information to assess whether you are eligible for a loan or not. However, fraudulent businesses will not look at your credit report. Why? Because they don’t mind charging expensive fees in case you fail to make payments due to your poor financial situation.
If you get a phone call about a loan offer, discard it immediately. Keep in mind that making a deal about a loan through the phone is illegal. Any loan offer that isn’t put on a document where you can clearly see the conditions and consequences is against the law.
Lenders with insecure websites should raise concerns immediately when you don’t’ see the padlock symbol on the site. Always check if the site is secure before entering any personal information. If you enter your sensitive information, such as credit card numbers or social security numbers, they might be abused by scammers. This could end up with stealing money from your account or even identity theft, so make sure to stay away from suspicious sites.