What Is an Advanced-Fee Personal Loan?

[Jan 27, 2009.]

 

Borrowers with bad credit may find themselves desperate enough to apply for advanced-fee personal loans. But these personal loans have many pitfalls, and consumers would be smart to steer clear of them.

To obtain an advanced-fee personal loan, borrowers must pay money upfront, supposedly to cover the lenders loan insurance, according to CNBC. Advanced-fee lenders claim that this type of insurance allows them to make personal loans to risky customers with bad credit. Fees can range from hundreds to thousands of dollars.

In some cases, these fraudulent lenders will take the money and run. In other cases, borrowers may receive an application or a stored value or debit card instead of a personal loan or credit card, according to the Federal Trade Commission.

 Here are some of the warning signs that a lender is trying to perpetrate an advanced-fee loan scam:

—They don't appear concerned that a borrower has bad credit and run ads saying that personal loans are guaranteed despite low credit scores.

—They refuse to disclose their fees before a borrower signs the loan application.

—Their name sounds similar to a reputable lender in order to confuse borrowers.

—They have a Web site without phone and address information.

—They are not registered to do business in the borrower's state.

—They request wire transfers to their company or an individual.

Advanced-fee loan scams are on the rise because so many Americans are short on cash and desperate to pay their bills. But if a loan offer sounds too good, chances are there's a scam artist behind it.

People who are desperately seeking a way out of their financial woes would be better off getting help from a reputable credit counselor. But as with anything it's important to ask as many questions as possible upfront before committing to any debt counseling plan.

 

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.