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When you’re researching unsecured personal loans online, it is easy to focus on the interest rate. However, there are a number of factors you need to consider before applying for the loan. We’ll outline the most important factors to consider and explain why these are so important to would-be borrowers.
Suspicious Red Flags
Scammers will prey on the desperate. Fake online loan sites are ideal for them, because people will enter their detailed personal information along with a bank account number. Their desire for a personal bailout means many will ignore potential red flags. What are the red flags that should make you think twice before you apply for a loan online? And what are the signs that a website is not legitimate?
If there is no credit check or income verification, it is fake. No lender is going to just give you money on the promise you’ll pay it back. Payday lenders won’t check your credit score, but they’ll require proof of income in order to issue the payday loan. Installment loans and other online personal loans will require a credit check, though they won’t penalize you the way mainstream lenders would if you have less than perfect credit.
Upfront fees are another red flag. You’re expected to pay for the loan by paying interest, not paying up front. No legitimate lender is going to demand 50 dollars up front to loan you 500 dollars. This is in the same category as fake lottery scams that demand 500 dollars so they can send you 5 million. Nor will a real online lender demand collateral like a scanned copy of your car title. No lender is going to demand that you put money on a prepaid card so you can receive the cash advance, either.
Some of the red flags are in the fine print. For example, an online lender that lacks a physical address is certainly a scammer, though it is easy to put a fake address on a website. If they aren’t registered with the government, they aren’t legitimate, but again, scammers can grab someone else’s registration number or simply say they are. The Federal Trade Commission requires lenders to be registered in the states where they do business. If the website doesn’t even say they’re registered in several specific states, stay away.
There are other warnings signs that people can recognize in any context. Guaranteed approval means it isn’t real, because legitimate lenders will reject someone who has insufficient income or just got out of bankruptcy. While financial websites may have countdowns until they log you off the website for the sake of IT security, no one is going to have a countdown saying finish this deal so you can get a bargain. If the website itself isn’t secure, this is a major red flag. If they lack HTTPS, don’t enter your information. If the secure lock icon is missing in your address bar, close the site and don’t go back.
A lack of transparency is another red flag. What interest rate will you be paying? What fees are charged to rejected applicants? What will you be charged if you have to roll over the loan? If the website doesn’t make this clear, they will either rip you off or simply drain your bank account. Both outcomes are bad, though identity theft is clearly worse. Any demand for the personal information of family members is a major red flag. Nor should they ask why you need the money, because an unsecured personal loan isn’t subject to the same scrutiny as a business loan.
One solution is to research Match Financial’s unsecured personal loans. They allow you to compare a large number of carefully screened lenders.
Reasonable Rates and Fees
Most online lenders will not charge you a fee to access their services. Their administrative costs will come out of the relatively high interest rate they charge. Their fees should be spelled out in the terms of service. You should know what the interest rate is before you give them your bank account information.
Always convert the interest rate they’re offering to an annual percentage rate. For example, a 20 percent interest rate on a one-month loan is similar to a 900 percent annual rate. An interest rate of 10 percent per month yields a more than 300 percent annual rate. Understand the interest rate you’re paying on the loan, because it is possible that you’ll pay less on a cash advance on your credit card than an online loan. Knowing how to calculate the annual percentage rate or APR also allows you to compare loans to each other based on their annual rate. This lets you compare loans that list their interest rate for a two week period or a three month loan term.
Know the terms and conditions before you commit to the loan. Then you won’t be surprised if you’re hit with a massive penalty if you make a late payment or have to roll over the loan.
We’ve already discussed the red flags that warn you of a scammer. Yet there are legitimate lenders who have terrible customer service. Do a quick internet search about any potential lender. Don’t read the reviews on their website. Instead, read reviews on other sites. What complaints do people have about the company? Do they drain the customer’s bank account when someone asked to roll over the loan? Do they charge a higher interest rate than the one promised? Do they have a buggy website that forces you to enter the information again and again? Does it take days to get an answer regarding your application? Do they have a high rejection rate? If so, why?
Don’t waste your time entering your information if you don’t meet their criteria. For example, does the company reject anyone with a credit score under 600? If your credit score is 580, then there’s no point in entering your personal information into their website. If you don’t have the documentation, they require customers to have, don’t apply. If they require liveness checks or other advanced security measures to be met that you can’t meet, don’t apply. Note that lenders shouldn’t require you to install an app to borrow money from them.