Loan Red Flags: What To Look Out For Before Borrowing

1. No credit History

   A lender who does not require a credit score can be an attractive option if you have a low credit score. However, lenders take on extreme risk with these types of loans and will try to offset it with high interest rates later on. A borrower requesting little or no credit history is an immediate red flag. Alternatively, if your credit score is on the weaker side, we recommend you look for lenders that consider credit history along with other qualitative factors.

2. Guaranteed Approval 

   Lenders take on considerable risk when giving out loans, guaranteeing any applicant approval raises immediate concern. Legitimate and safe lenders evaluate their borrowers to ensure their obligations will be paid. This red flag could get you involved with a predatory lender that insists on an absurdly high interest rate to compensate for the risk or it can lead to a scam.

   
   

3. Extremely Low Interest Rates

   Lenders take on a great deal of risk when accepting a client. So, if an interest rate seems too good to be true it probably is.

    

4. Interest Only-Period

   Interest-only periods on loans are advertised by borrowers as only set periods of time when you pay interest on a loan. While this offer may seem great, you still must repay the loan in full, making future payments considerably larger.

   
   

5. Advance Fees

   Never pay an advance fee to apply for a loan. Legitimate lenders will never require this payment. Most likely these loans end up being a scam.

In addition to these red flags regarding loan terms, we strongly recommend that you be extra vigilant during the COVID-19 crisis; the FBI has even released statements urging people to be extra cautious as some people use this event as a scamming opportunity. When evaluating an unknown lender, be sure to check their website, read online reviews, and find their legitimate, physical address. We will happily help you verify lenders or refer you to some of our partners. 

Have any questions about COVID-19 resources? Feel free to contact us at covid@ascentmicrofinance.org.