What is a loan?
A loan is a sum of money given to another party as a credit, taking a guarantee of future repayment of the principal amount, most of the time an interest rate is added to the principal amount.
Loans come in different forms which are secured, unsecured, commercial, and personal loans.
Essentially, a loan is a form of debt incurred by an individual or company, in which the lender, who is typically a corporation, financial institution, or government, advances the borrower a sum of money, and the borrower agrees to a set of terms, including any finance charges, interest rates, repayment dates, and other conditions, in exchange.
Why are loans even used?
Loans are used for a number of reasons, them being a costly major purchase, investing, education, buying a house or car, renovations, starting a business, etc.
Loans help companies increase and improve their operations.
In order to get a loan few things should be intact, as the lender would check your background before giving the loan.
Income:
The lender usually checks the borrower’s yearly income before giving them a large loan in order to ensure that they can repay it.
They may also want the borrower to have stable employment for several years at least several years.
Credit score:
An individual’s credit score represents their creditworthiness based on their borrowing and repayment history. People’s credit scores can be severely damaged by missed payments and bankruptcy.
Debt to income ratio:
The lender also checks the borrower’s credit history to see how many loans they have active at the same time, in addition to income. Borrowers with a high level of debt have difficulty repaying their debts.
Different types of loan scams:
There are always predators who see consumers at their lowest and most vulnerable point and try to make them a point to make money, they see an opportunity for business in recessions, natural disasters, individual health issues like heart attacks, and even large-scale public health crises like epidemics and pandemics.
They catch people in their most vulnerable form and scam them.
Loan scams are the most common scams for decades.
In recent years millions of people lost a lot of their money in government impersonation scams. They were told that the real government is dealing with the issue and were scammed of a lot of money.
There are 8M fraud reports of about $5.8 billion which is an increase of 70% from 2020.
There were more than $2.3 billion in losses from government imposter scams, which is an increase from $1.2 Billion in 2020.
What is a loan scam?
A loan scam is when someone offers you a loan but lies about the details. They may make promises they can’t keep or hide fees.
They might pretend to be a real company to trick you into trusting them. The scammer’s goal is to get your personal or financial information, take ownership of your property, or charge you too much. Be careful with anyone offering you a loan and make sure to check their credentials before giving them any information.
Loans scam red flags to save yourself from:
Pressure to act:
Scammers usually pressurize people to act fast, they do not give you the time to think.
They create false urgency, they keep asking for sensitive information or ask for signatures.
But it is never a good idea to make financial decisions, give sensitive information or sign any document under pressure.
Guaranteed approval:
All the loan lenders have criteria to issue loans, they have a fixed credit score, proof of income, and a few more criteria, loans are issued to financially backward people as well with a low credit score. But it is probably a scam if a guarantee for approval is given.
Debt cancellation:
Scammers usually promise the victim that they can cancel their scams, or they can make sure that their loan is forgiven, they take money to work for the same reason and do nothing. About $1.7 million was scammed in the name of forgiving student loans.
Working with any company to cancel your loan repayment may become a big problem for the victim financially and legally as well.
How to recover a loan scam:
- If the payment was made either by a credit card or bank account it is very important to contact the bank people and request them to cancel the transaction immediately. Initiate the required security processes.
- It is very important to take the help of government services, always file a police complaint, and be sure to ask for a copy of your report.
- Take legal help, there are specific lawyers who help with recovery cases, and taking their support would surely help with the recovery.
- A scammer may use your credit or open accounts in your name if your personal or financial information was stolen. Get a free copy of your credit report and check it for unauthorized activity. In addition, you can place a fraud alert on your credit report with one of the three national credit bureaus.
- FTC reports are always helpful. Fraud reports assist the FTC in tracking and investigating scams.
- There are a number of genuine firms which help you recover your lost funds, do your research and contact these firms, they will surely help you get your funds back.
Conclusion:
Loan scams are a serious issue that can affect the victim’s mental health to a huge extent. If you have fallen victim to a loan scam, it is important to act quickly and take steps to recover your losses. These steps may include reporting the scam to law enforcement, contacting your financial institution or credit card company, and a few more points that are mentioned in the article above, seeking assistance from a consumer protection agency or legal professional would help but make sure to do your research. It is important to educate yourself on how to avoid scams in the future by researching the lender, reading reviews, and being cautious of shady offers.