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Warning Signs of Personal Loan Scams

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Interest in personal loans is rising this year, industry experts say. 

Unfortunately, potential scams are rising too.

Amid record-breaking unemployment rates and a staggering economy, consumers are seeking personal loans for two primary purposes: to consolidate credit card debt or simply to get by, says Brian Walsh, CFP and senior manager of financial planning at SoFi, a national personal finance and lending company. 

“This is a way to help get them through until they get back to normal,” says Walsh.

Scammers have taken notice. In the first four months of 2020, the Federal Trade Commission (FTC) reported more than 18,000 accounts and more than $13.4 million in losses to COVID-related fraud. Those complaints cover a range of financial scams. But personal loan scams have been a problem since before COVID. Last year, the Insurance Information Institute, a trade group, recorded nearly 44,000 reports about potential personal and business loan scams. 

“Unscrupulous people will try to take advantage of people’s needs,” Walsh says. And in the middle of a pandemic that’s putting the economy through the ringer, those unsavory people are finding ample opportunity. 

If you’ve determined that a personal loan makes sense for you, the next step is to explore red flags and warning signs of personal loan scams. 

Personal Loan Scams Warning Signs 

“There are basically two main reasons you could get scammed: people are either trying to steal your money, or they’re trying to steal—and maybe sell—your personal information,” says Jamie Young, managing editor at Credible.com, an online loan marketplace.

Here are some warning signs to watch out for.

Too Good to Be True

“If it sounds too good to be true, it most likely is,” Walsh says. In fact, all the experts we spoke to echoed this sentiment. They agreed if a lender has a guaranteed approval for a fast loan, raving reviews only on their own website, doesn’t care about bad credit, or offers  no credit check at all, it’s wise to do a ton of research before you agree to anything. 

That might include reaching out to you. “It’s not uncommon for banks to send you offer letters in the mail. But if it’s a bank you’ve never heard of and they’re randomly reaching out to you with a deal seeming a little too good to be true, you should proceed with caution,” says Farnoosh Torabi, NextAdvisor contributing editor and host of “So Money” podcast.

Bad Credit? No Problem

Pre-approvals, guaranteed approvals, or no credit checks seem to be common themes in personal loan scams. If the lender is making guarantees before checking your financial history, be cautious. Guaranteed approvals or no credit checks are possible scams. “A lender needs to do some sort of underwriting to assess and price that loan appropriately. If they’re not doing that, it’s a red flag to me,” Walsh says. 

Upfront Payment

All the experts we talked to said to be wary of advance-fee scams. 

“With some personal loans, you’ll need to pay for an application or the origination fee, but that’s going to come from the loan,” says Walsh. In other words, any fees associated with the loan should be covered by the loan itself. If you have to come up with out-of-pocket money, walk away. 

Pro Tip

Your state’s finance department should maintain a registry of approved lenders. Check it.

These fees are often worded with legitimate terms like “application fee” or “processing fee.” However, these fees are anything but legitimate and often ask you to do things that may seem odd, like purchase a prepaid card, says Anuj Nayar, financial health officer at LendingClub.  

“Legitimate personal loan lenders do charge something upfront. It’s called an origination fee, and that’s normal — but it’s taken out of your loan proceeds,” Young says. On the other hand, she says, “advance-fee loans are not legitimate. You should never be giving anyone your money out of your pocket before you get approved.”

Lack of Company Information

Another big alert of a potential loan scam is a lack of information about the lender. Legitimate financial institutions usually have an address and ample contact information on their site. If your lender has no information about their company other than a URL, do some extra digging before you give them any personal information. 

Pressure Tactics

Finally, if a lender ever applies any pressure, don’t bend to it. “No one’s going to pressure you if they’re a legitimate lender,” says Young. 

“Make sure you aren’t feeling pressure to make a decision today or disclose personal identifiable information like a bank account number, Social Security number, or credit or debit card information,” says Nayar. Reputable institutions will not force your hand or rush the personal loan application process. 

How to Vet Loan Providers

Make Sure the Website is Secure

Check the company’s website URL to see if it has HTTPS. The S stands for secure. HTTP (with no S) is not a secure site to handle personal data collection. You want to make sure the site is secure since you will be giving personal information, says Young. 

Look Them Up

A reputable financial institution should have information about themselves online. “If you can’t find any information on this company or this product, walk away,” Torabi says. She recommends doing a Google search with the institution’s name and the word “scam” to see what comes up.   

Read Reviews

“Do some internet sleuthing,” Young says. And Walsh agrees. “Whenever you’re shopping for a financial product, you should read reviews and shop around as much as possible,” he advises. Scour reviews to make sure other consumers haven’t been mistreated by any lender you’re considering.  You can check out Better Business Bureau and google “reviews for X company,” Young suggests. 

Ignore the Fishy Offers

As our experts emphasized, you may get offers sounding too good to be true. Ignore them. Don’t fall into the trap of big promises of waived credit checks and guarantees for a fee.   

Vet Through Government Tools 

Government resources are free and “there to help consumers not get taken advantage of,” says Walsh. You can vet your potential lender through one of these sites by typing the name of the company into the search bar.  If there are charges against them, one of these sites will report on it. 

Experts recommend:  

Federal Trade Commission’s (FTC)

Consumer Financial Protection Bureau (CFPB)

U.S. Public Interest Research Group (PIRG) 

The American Bankers Association (ABA)

Check Your State’s Registration Resources 

Your state’s finance department should maintain a registry of approved lenders. “With personal loans, it’s about verifying the institution and making sure they’re registered,” Torabi explains. State resources vary; some states issue lender’s licenses, others register them. Look up your state’s system and make sure the lender you’re considering checks out. For example, I searched for “New York state licensed lenders” and reached New York State’s Department of Financial Services. Here you can search for information on licensed lenders in New York. 

Shop and Compare Rates.

Compare rates with a few lenders to make sure you’re getting the loan money you need with the lowest interest rate possible. “With any product you shop for, you shop around. Don’t limit yourself to this one offer,” Torabi says. 

The Bottom Line 

Not only does vetting any financial institution you’re considering protect you from personal loan scams, but it can also help you get the lowest interest rate possible. 

Watch out for lenders asking for money upfront or pressure you, especially if you can’t find much info about their company. When in doubt, it pays to go with a lender you know you can trust. 

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Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom | Fintech Zoom

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Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom



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Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

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The government’s incentive to step in and bail out depositors when banks fail is clear from past experience.

By Anusha Chari & Amiyatosh Purnanandam

The failure of the Punjab and Maharashtra Co-operative Bank (PMC) in September 2019 shone a light on the limitations of India’s deposit insurance system. With over Rs 11,000 crore in deposits, PMC bank was one of the largest co-op banks. That the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance covered depositors, provided little solace when the realisation hit that the insurance amounted to a mere Rs 1 lakh per deposit.

The predicament of PMC depositors is, unfortunately, not an anomaly. Several bank failures over the years have severely strained RBI and central government resources. While co-operative banks account for a predominant share of failures, other prime examples include the Global Trust Bank and Yes Bank failures. These failures entail a direct cost to the taxpayer—the DICGC payment or a government bailout. More importantly, bank failures impose long-term indirect costs. They erode depositor confidence and threaten financial stability, presenting an urgent need for deposit insurance reform in the country.

A sound deposit insurance system requires balancing two opposing forces: maintaining depositor confidence while minimising deposit insurance’s direct and indirect costs. At one extreme, the regulator can insure all the deposits, which will undoubtedly strengthen depositor confidence. But such a system would be very expensive.

A bank with full deposit insurance has minimal incentive to be prudent while making loans. Taxpayers bear the losses in the eventuality that risky loans go bad. Depositors also have little incentive to be careful. They can simply make deposits in the banks offering high interest rates regardless of the risks these banks take on the lending side.

Boosting depositor confidence and reducing direct and indirect costs require careful structuring of both the quantity and pricing of deposit insurance. Some relatively quick and straightforward fixes could help alleviate the public’s mistrust while improving the deposit insurance framework’s efficiency.

India has made some progress on this front over the last couple of years. First, the insurance limit increased to `5 lakh in 2020. Second, the 2021 Union Budget amended the DICGC Act of 1961, allowing the immediate withdrawal of insured deposits without waiting for complete resolution. These are very welcome moves. Several additional steps could bring India’s deposit insurance system in line with best practices around the world. Even with the increased coverage limit, India remains an outlier, as the accompanying graphic shows.

The government’s incentive to step in and bail out depositors when banks fail is clear from past experience. However, these ex-post bailouts are costly. The bailout process also tends to be long, complicated, and uncertain, further eroding depositor confidence in the banking system. A better alternative would be to increase the deposit insurance limit substantially and, at the same time, charge the insured banks a risk-based premium for this insurance. Under the current flat-fee based system, the SBI pays144 the same premium to the DICGC—12 paise per 100 rupees of insured deposits—as does any other bank!

A risk-based approach will achieve two objectives. First, it will ensure that the deposit insurance fund of the DICGC has sufficient funds to make quick and timely repayments to depositors. Second, the risk-based premia will curb excessive risk-taking by banks, given that they will be required to pay a higher cost for taking on risk.

India is not alone in trying to address the issue of improving the efficiency of deposit insurance. The Federal Deposit Insurance Corporation (FDIC) recognizes that the regulatory framework governing deposit insurance is far from perfect and the United States is moving towards risk-based premia. The concept is similar to pricing car insurance premia according to the risk profile of the driver. The FDIC computes deposit insurance premia based on factors such as the bank’s capital position, asset quality, earnings, liquidity positions, and the types of deposits.

In India, too, banks can be placed into buckets or tiers along these different dimensions. The deposit premium can depend on these factors. It is easy to see that a bank with a worsening capital position and a high NPA ratio should pay a higher deposit insurance premium than a well-capitalized bank with a healthy lending portfolio. The idea is not dissimilar to a risky driver paying more for car insurance than a safe driver.

Risk-sensitive pricing can go hand-in-hand with the increase in the insured deposit coverage limits bringing India in line with its emerging market peers. In a credit-hungry country like India, these moves would build depositor confidence, possibly increasing the volume of deposits and achieving the happy result of the banking system channeling more savings to productive use.

Chari is professor of economics and finance, and director of the Modern Indian Studies Initiative, University of North Carolina at Chapel Hill and Purnanandam is the Michael Stark Professor of Finance at the Ross School of Business, University of Michigan

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5 Signs You’re Not Ready to Own a Home, According to a CFP

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The housing market has boomed over the last year, despite a global pandemic and millions of Americans struggling to make ends meet. 

Many people are spending less on entertainment, clothing, travel, and other discretionary purchases during COVID. Federal student loan borrowers have seen temporary relief from their loan payments. These expenses will most likely rise again after the pandemic, and many people who committed to a new home with a large mortgage will struggle to keep up. 

I often speak with clients and prospective clients who want to buy a home before they have a strong financial foundation. Buying a home is not only one of the largest purchases you’ll make in your lifetime, but it’s also a huge commitment that’s extremely hard to undo if you have buyer’s remorse

It’s important to make a thoughtful, informed decision when it comes to a home purchase. Before you take the plunge into homeownership, check for these signs that you’re not quite ready to buy. 

1. You have credit card debt

Credit card debt can be a drain on your monthly budget, and when combined with student loans and a car loan, it can lead to high levels of stress. 

Generally, more debt means higher fixed expenses and little opportunity to save for long-term financial goals. Your financial situation will only get worse with the addition of a mortgage. I always recommend that clients be free of credit card or other high-interest debt before they consider buying a home. 

To rid yourself of credit card debt, take some time to get a good handle on your cash flow. Take an inventory of your spending over the last six to 12 months and see where you can cut back. From there, develop a realistic budget that includes aggressive payments to your credit cards. 

There are several strategies to help you knock out credit card debt fast. Regardless of the method you choose, stick with the plan and track your progress along the way. Once you pay off your credit cards, you can allocate your debt payments to savings, which can help you avoid this situation in the future.  

2. You have bad credit

Bad credit is not only a sign that you may not be ready to take on a mortgage, it can also signal a high risk to

mortgage lenders
. A high-risk status results in higher interest rates and more strict requirements to qualify for a loan. A mortgage is one of the largest loans you’ll take out in your lifetime, and if you get behind on payments, you could lose your home. 

Just as with credit card debt, bad credit could be a result of past financial mistakes. Dedicating the time to repair bad credit and improve your credit score will help you beyond purchasing your dream home. 

Start by pulling a recent credit report from each of the three credit bureaus so you can review it for errors. Dispute any errors, address past-due accounts, and bring your overall debt balances down. It’s helpful to learn what has a negative effect on your credit score so you can avoid these mistakes in the future. 

3. You don’t have an emergency fund (or an inadequate one)

If you’re unable to save for a rainy day, you probably don’t have enough money to buy a house. Owning a home is a big responsibility, and unexpected expenses pop up all the time. In addition, you could lose your job, have a medical emergency, or another unexpected expense unrelated to the home. Maintaining an emergency fund is a good sign that you have discipline and are prepared for the responsibility of homeownership.

Many financial experts recommend saving at least six months of living expenses in an emergency fund. If you have variable income, own a business, or own a house, you should save more. To build an emergency fund, set money aside from each paycheck and automate transfers to make the process easier. Give your emergency fund a boost when you receive lump sums such as bonuses or tax refunds. Start by saving one month of living expenses and build from there. 

4. You don’t have separate savings for your home

I always advise clients to set aside savings for a home in addition to an emergency fund. It’s a bad idea to start homeownership with no savings. Whether you have unexpected expenses related or unrelated to the home, having no emergency fund after a home purchase will lead to unnecessary stress — and possibly more debt. 

When purchasing a home, you’re responsible for a down payment and closing costs. While a 20% down payment is ideal to avoid private mortgage insurance, a down payment of at least 3.5% is typically required. Closing costs can range from 2 to 5% of the home’s value. 

Also, you will have moving costs, costs to spruce up your new place (like new furniture or light cosmetic updates), and any initial maintenance and repairs. Be sure to budget for these items to know how much to save on top of your emergency fund. It doesn’t hurt to boost your emergency fund, too, in preparation for homeownership. 

5. You have a low savings rate

It’s much easier to develop good savings habits before you have a lot of responsibilities. To get on track for financial independence, several studies show that you should save at least 15% of your income. The longer you wait, the more you’ll need to save. 

If your savings rate is low before you purchase a home, it will most likely worsen after becoming a homeowner. Even if your mortgage is similar to your rent, ongoing maintenance and repairs, higher utilities, and homeowners association fees can wreak havoc on your budget. 

Take a look at your current savings rate and see if you’re on track for financial independence. If you’re saving less than 15 to 20% of your income, work to improve your savings rate before you consider buying a home. A strong savings habit can help you build your home savings fund faster and ensure that a home purchase doesn’t impede your long-term financial goals. Finally, understand how much house you can afford so you can avoid being house poor. 

Buying a home can be rewarding, and when done the right way, it’s a way to build wealth. Before you decide to buy a home, it’s important to understand your numbers and ensure that you’re ready for the commitment. Without preparation, your dream home could be detrimental to your long-term financial goals.

Chloe A. Moore, CFP, is the founder of Financial Staples, a virtual, fee-only financial planning firm based in Atlanta, Georgia and serving clients nationwide.

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