If you are thinking of applying for a loan, you’re probably considering getting one from a bank or a credit union. But did you know that you can now also borrow money online?
The internet has made so many things possible—communicating with people from the other side of the world, learning outside the classroom, and opening a business that’s open 24/7. It has also allowed people to lend money to those who are in need of extra cash.
Unfortunately, the internet has also become an opportunity for scammers to set traps for their unknowing victims.
If you want to borrow money online, you need to make sure that you don’t end up working with a shady lender. You must be aware of the risks, and know what red flags to watch out for.
Risks of Borrowing Money Online
There are three major risks of borrowing money online, and these include:
- Losing your money – Here’s how you can lose money when you borrow online: an online lender will require you to pay fees before approving your loan. After you pay the fee, the lender disappears, the imaginary loan does not get approved, and he/she escapes with your money.
- Paying too much money – Another way a shady lender works is charging you with hefty fees and extremely high interest rates. Even if you do get the money that you need, you end up paying a lot more for it.
- Becoming a victim of identity theft – Like any lender, the scammer will require you to provide personal information (date of birth, address, Social Security number and so on). But unlike a real lender, the scammer will not use your personal information to process your loan application, but will use this to steal your identity, or sell your information to another person who will.
Choosing the Right Lender
It’s imperative to choose a legitimate and reputable online lender that will not steal your money or your personal information, or charge you with extremely high fees.
Here are some strategies that will help you:
- Read online reviews – Do not trust an online lender that does not have any real review from other users. Do not trust one that only has positive comments on its website. It’s easy to fake testimonials. You need to go to forums to find feedback about a certain lender.
- Check for complaints – Go to the official website of the U.S. Consumer Financial Protection Bureau (CFPB), where you will find a database of all the complaints filed about financial products. See if the online lender has received any formal complaint. If it has, take this as a sign to look for another online lender to work with.
- Ask for recommendations from family and friends – Ask people you know who have borrowed online about their experience with their lender. You might want to check out that lender if you hear many good things about it.
- Do not borrow money from lenders who send unsolicited emails or make unsolicited phone calls – Chances are, these are from scammers who are out to take advantage of you.
Red Flags to Watch Out for
It’s actually quite easy to spot a shady lender. You just have to know the signs. Some of the most common ones that should serve as a red flag include:
- Upfront fees – A reputable online lender will not require you to pay any advanced fees to process your loan application.
- Guaranteed approval – Real lenders will not make a promise to approve your loan no matter what. A guaranteed approval seems like a great idea but it’s too good to be true. It’s a tactic commonly used by scammers to lure people who are desperate for money.
- Wiring money requests – Some scammers will try to steal your money by requiring you to send them a certain amount through wiring services like Western Union. But if you think about it, why would you send money when you’re the one who actually needs it? Do not send any money to anyone you do not know, especially online.
There’s nothing wrong with borrowing money online. But you need to be absolutely sure that you know the ins and outs so you don’t end up becoming a victim.