Almost everyone is struggling financially due to unemployment and business crisis caused by the COVID-19 pandemic. As a result, many scam lenders and loans are on the rise again. But you can do this to check if a lender is legitimate based on a few things.
So, where should you start?
If you're being offered a loan by a company that you haven't heard of, the first thing you need to do is the online research. A simple search query should suffice, and you'll probably get tons of information about them - from customer reviews to signs of negative news stories.
However, that's not all. There are also a few signs that you can check yourself to see if a lender is trustworthy.
Reputable lenders look at your credit history to see your profile. Some lenders even get reports from the three major credit bureaus: Equifax, Experian, and TransUnion. With your credit history, lenders will know how much risk you carry as a borrower.
Your credit history is the sole basis of your credit score. The three numbers on your credit score tell the lenders how likely you're to pay back the loan. Your score would also help them gauge your borrowing limit and the interest rate.
For example, CreditNinja offers personal loans, and to know if you're qualified, they look at your credit history. Then they determine the repayment terms, such as interest rate and borrowing limit, by looking at your credit history.
Predatory lenders don't take your credit history into account, which means that they don't care about how much of a risk you are as they're getting money from you, anyway.
One typical strategy of scammers is asking for a prepaid debit card or a gift card from their borrowers. They claim that this move is for insurance or to charge a fee. It's one good way to know that the lender is predatory. A prepaid card allows you to spend the maximum amount of money it has, which is why predatory lenders want them.
Predatory lenders and loans aren't typically registered; because if they try, the government will know about their bad business practices. So if you want to know if a lender is legit, try to find out if they are licensed to operate.
For most online lenders, their licenses are pretty easy to locate on their websites. But, if you notice that a lender's license is hidden or they have nothing at all, it's a red flag.
Although predatory lenders have existed for a long time now, thankfully, they're still in the minority. Many lenders nowadays show people that they're trustworthy and have all the documentation needed to operate within the law. However, don't take this for granted. Make it a habit to check lenders and see if they are legit.