November 04, 2010

Guaranteed loans for people with bad credit

Dear Consumer Ed:

I received a flyer in the mail guarantee­ing a loan to people with credit problems.  The flyer said that there was an up-front fee of a pretty sizable amount.  If I need the money, should I consider such a loan?

Consumer Ed says:

For the answer to this question, we went to the Georgia Banking and Finance Department. Here is their response…  

Advance fee (up-front fee) loan scams are victimizing consumers across the county.  These scam artists are preying on unwary consumers, taking their money for the promise of a loan or credit.  Many advance fee loans are promoted in the classified sections of the newspapers.  Often, the ads feature toll-free 800, 866, or 877 numbers, or area codes from Canada, such as 416, 647, 905, or 705.  The loans are promoted through direct mail, radio, and cable TV.  The fact that an ad is in a legitimate media outlet does not guarantee that the company placing it is trustworthy!

Consumers who respond to phone calls or ads that purportedly guarantee loans to those with poor credit instead lose hundreds of dollars or more in fees demanded by the suspected scammers.   These frauds follow a typical pattern.  Consumers call a toll-free number and are told to submit credit information over the phone or fill out paperwork to be mailed later.  In exchange for a $5,000 to $100,000 loan, they are told to wire or mail a money order for $500 or more to pay processing fees or other charges.  The applicants never get the loan, and they lose what they paid in fees.  The consumer also risks having their identity stolen if they provided a Social Security number or other personal data to the scammers.

Legitimate offers of credit generally do not require an up-front payment.  Although legitimate lenders may charge application, appraisal, or credit report fees, the fees are generally taken from the amount borrowed.  And the fees usually are paid to the lender after the loan is approved.  Legitimate lenders may guarantee firm offers of credit to “credit-worthy” consumers, but first, they evaluate the consumer’s creditworthiness and confirm the information in the application. Remember . . . If it sounds too good to be true, it probably is!

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