There are many different things that you need to do before you sign on the dotted line to accept a loan. Obviously, you need to make sure that you understand the interest rate and other terms of the loan. But some things are less obvious. For example, do you know that you should assess for loan company legitimacy? There are scam companies out there that offer terrible loans. You don’t want to fall for them.
What is Loan Company Legitimacy?
Loan company legitimacy just means that you have checked out the lender to make sure that they are a qualified lender who is going to offer you a real, fair loan. The reason that you check for this is to avoid scams. Individuals and businesses are both targets of loan scams. Bad lenders can look very legitimate. Therefore, you have to take some extra steps to make sure that you don’t become the victim of a bad loan.
How to Assess the Legitimacy of a Lender
Nav.com says that there are three core things that you should always check out about the lender before you accept a loan:
1. Check with the Better Business Bureau
This is one of the best places to start whenever you want to find out if a company is legitimate. More than loan company legitimacy, it will also tell you whether they are a good lender or a bad lender. After all, if anyone has filed complaints about the company with the BBB in the past, you’ll easily know what’s wrong with them. Of course, a single complaint doesn’t mean that the loan company isn’t a good choice. But it’s a good starting point to see if there are any red flags before you accept a loan.
2. Check with the State Attorney General
Lenders need to be registered with state government agencies. If you check with your state attorney general’s office and they haven’t heard of your lender before, then you should beware. Proceed with caution if you proceed at all because this is a huge warning sign that the lender is not legitimate.
Note that you can also check with your state’s Department of Banking or Department of Financial Regulation. One or all of these places should have information about the company that you’re working with.
3. Search for Online Reviews
If everything checks out with the Better Business Bureau as well as the attorney general, then your final step is to read online reviews of the company. Of course, you have to take these with a grain of salt. A negative review might just be one person’s bad experience with factors that you’re not aware of. Likewise, a terrific review could be just excellent marketing on the part of a scam business. However, if you read through multiple reviews then you should be able to get an overall feel for the legitimacy, or lack thereof, of the lender.
Other Red Flags to Watch Out For
Those three steps are a good starting point to check for loan company legitimacy. If you want to go the extra mile, watch out for these red flags:
- The company doesn’t have a strong online presence. They should have a website, social media, and presence on a site like Crunchbase. Also, the website should be a secure site (https not just http).
- The company asks for upfront fees. Even if there’s an origination charge on the loan, it should come out of the top of the loan; it shouldn’t be something that you send in advance of getting the loan.
- They don’t ask for enough information. Bankrate notes that if a company doesn’t ask for your credit history before offering a loan, then there’s a good chance you’re involved with a scam.
- The company reaches out to you like a cold call, through a phone call, or via door-to-door contact. This is almost always a sign against loan company legitimacy.
- The lender pressures you to act now. If the loan offer expires quickly, it’s probably a scam.
Ultimately, you should also trust your gut. Sometimes when we feel desperate for a loan, we ignore the little voice that tells us something isn’t right. Don’t ignore that voice. Trust yourself.