Chicago, IL-September 25, 2009 – In these tough economic times many people are in greater need of loans. The Better Business Bureau is advising consumers looking for a loan to steer clear of advance fee lenders. While advance fee loans may seem to be a quick fix to one’s financial situation, in the end they will end up costing cash-strapped consumers much more than they bargained for.
Advance fee loans lead consumers to believe that despite their credit history and with little or no background check they will be approved for a loan. Consumers are either solicited by telemarketers, contacted by email, or come across advance fee loan offers in the classified sections of newspapers and magazines or on the Internet. After filling out all necessary paperwork, consumers are then asked to pay an upfront fee of anywhere from $300 to $3,000. The fee is either paid by wire transfer, often to locations in Canada, or debited directly out of the consumer's checking account.
“This is an unfortunate sign of the times,” said Steve J. Bernas, president & CEO of the Better Business Bureau serving Chicago & Northern Illinois. “When consumers are shocked and worried by a pay cut or job loss, they are too often attracted to the quickest source of financing rather the most reasonable source of assistance to solve their financial problems.”
Bernas stated, “It is the experience of the Better Business Bureau that consumers who pay these upfront fees never receive their loans. Generally, once the requested fees are paid the companies making the offers cease contact or change their phone number.” Additionally he says, “According to the FTC, it is illegal for companies doing business in the U.S. by phone to promise a loan or ask you to pay for it before they deliver.”
Angela Johnson of Lombard, IL took out an advance fee loan with Brimley Financial Group: “I needed a loan for school and applied for one online I had not applied to Brimley but they were the ones that called me back. The guy told me that I was approved. I was surprised—I had not applied with them and also because I had filed bankruptcy in 2008. I had applied for $2000. They said that I had been approved for the minimum loan amount which was $5000. Then he told me that because of my credit they would need an $800 deposit. That was a red flag but I thought it could be true because of the bankruptcy. Then he had me send it to a place in Canada which worried me. I wired the money on Friday, August 7th and he told me I would have the money by August 10th. When I called I was told that they needed another $800 because of my credit. I refused and he said that I had to send the money or else they could send a refund. I asked for the refund and haven’t gotten it. No one returns my calls.”
Red Flags that indicate you may be dealing with an Advance Fee Loan scam are:
- If the company asks that you wire them money in advance to secure your loan.
- If guarantee of the loan is offered by phone.
- Lenders not interested in your credit history. Lenders who don't care about your credit record should be cause for concern. Ads that downplay bad credit and ads promising "fast money" or "guaranteed approval" often indicate a scam.
- Don't give your credit card, bank account or Social Security number on the telephone, by fax or via the internet unless you are familiar with the company or know why the information is necessary.
The BBB notes that the vast majority of people have other options they should all be investigated. Here are some recommendations:
- Make sure that you really need the money. How crucial is the service or the product that you plan to use the money for? Could you do without it until you can save some money on your own?
- Do you have a savings account or other type of financial account from which to draw emergency money that would cost you less and not put you at risk of being scammed.
- Are there items that are not essential that you could sell to obtain the necessary cash?
- Call your creditors. Before you borrow new money, contact your credit card and mortgage lenders. They may offer some leniency on your current debts, which would free up some cash for you to use in an emergency. Some have hardship programs that permit skipping a payment or making a smaller minimum payment. Maybe your creditor would be willing to reduce your interest rate.
- Consider a loan from credit unions, reputable small loan companies, advance pay from an employer, or local community-based organizations that make small business loans to individuals.
- When considering a loan, get at least two or three quotes from different lenders so you can compare the finance charges and the APR (Annual Percentage Rate).
- Read the entire loan agreement and ask questions if you don’t understand.
- Always research companies first with BBB by reviewing BBB Reliability Reports free of charge online at www.bbb.org.