Article Library

Identifying and Avoiding Loan Scams

In our constantly changing world, thieves are continuously coming up with new ways to take your money. In this article, we do our best to familiarize you with the loan scams most often encountered today.

You should know that there are no fees involved in real government relief

Disaster relief scams

The latest one of these involves the Gulf Coast area devastated by Hurricane Katrina, however, all such scams will work similarly.

For an upfront fee, "Federal Loan Agents" offer to help victims by "speeding up the claim process." These are not real Federal Loan Agents and if you give them money, you'll get no help. These fraudsters use the normal government delays and grindingly long red-tape to perpetrate their scam. They offer shortcuts and speedy loan approvals.

Sometimes the scam artists post billboards or run ads in magazines and newspapers. Some will show up on their victims' doorsteps or call. They'll pose as official government inspectors, but in order to get emergency loan assistance, you must first give them money, sometimes thousands of dollars. You should know that there are no fees involved in real government relief.

In the case of Hurricane Katrina, a relief fraud hotline had to be set up due to the extent of the scams.

If a disaster strikes your area, don't respond to any offer for a quick loan if there is an advance fee requirement. It's probably a scam.

Advance fee loan scams

This scam is similar to the disaster area scam, but this one goes on every day, in every state, all year round. The target victims are those who have a poor credit history, bad credit or who are experiencing financial disaster and emergency situations. The scammers prey on desperate people and end up making things far worse. Watch for the following signs.

You may be promised, or it will be strongly implied, that you will successfully receive a loan if you pay an up-front fee. This fee will be given an official-sounding title, like "Application Fee," "Processing Fee" or an "Insurance Fee." Your bad credit is no problem. You should know right there that you are being scammed because bad credit is always a problem with legitimate lenders. You may be in dire straits already, even desperate, but falling for scams will not improve your situation.

Ads for these loans can be found in magazines, on television and on the radio. Many are found in the back of tabloids. You should be aware that the number listed for you to call is probably a number purchased by the scammers and will eventually be disconnected while you're still waiting to receive your loan. If the number you must call begins with "900," you'll pay exorbitant rates just for the call. Some scammers have found a way to "switch" your "800" toll-free call into a "900" number without your knowledge while you're on the phone.

These experienced scammers sound professional. The forms you're sent to fill out are detailed and official-looking. You may be required to hand over sensitive private information, such as your Social Security number, your driver's license and your credit card number. If you do, your identity will probably be stolen and your credit rating will likely end up in trouble, if it wasn't already.

The scammer will typically promise that your upfront fee will be applied to your loan or will provide insurance on the loan. You will probably be given the promise that your money will be refunded if the loan does not go through. This is a lie, and if the scammers disappear, how are you going to force them to comply with their promise?

You will probably discover somewhere along the line that all that personal, private information you provided has been used to perpetrate crimes, set up phony accounts, and wipe out your savings and checking accounts.

If you are required to mail your up-front fee by some other means than the post office, this should be a signal to you that the scammers are probably trying to avoid mail fraud charges. If you must mail your fee to another state or country, again, you ought to beware.

Loan-flipping scams

Using "extra cash" as a way to entice you, a "lender" will contact you and offer a loan using the equity in your home. They will describe an attractive refinance package that will lower your monthly payment. You sign the papers and refinance. After awhile, this same lender will call you again and offer another loan, enticing you with images of cruises and trips. Your agreement to this sets up another refinance. The secret behind the loans are the fees you are charged, the points and the higher interest rates. Another way they get you is by putting a "prepayment penalty" on the loan which you end up paying every time you refinance and get a new loan.

In most cases, you'll pay far more in fees, penalties and interest than you may ever see in "extra cash." In the most extreme cases of being tricked into signing for a loan in order to get extra cash, the homeowner loses his or her home altogether.

Equity stripping scams

As the title implies, this scam uses the equity in your home against you. In this scenario, you have built-up equity, but not enough monthly money coming in to suit your needs and desires. Scam lenders will offer you a loan and when you hesitate because you know your income won't cover the extra monthly loan payment, the scam lender will tell you how you can lie on your application and pretend you have more income than you do. If you agree, you're setting yourself up for disaster.

After you fail to keep up with your monthly repayments, this scam lender may foreclose on your house. Your home may be taken from you and your equity stripped.

Deed scams

If someone ever offers to "help" you out of a financial bind if you'll "temporarily" sign over your deed, run! Once you sign your deed over to anyone, you will no longer have any control over your home.

Balloon payment

When a lender offers you a refinance package to lower your monthly payments, read the paperwork carefully. You could be signing yourself into a financial nightmare. If the monthly payments are lower, you might be paying only interest on your mortgage. At the end of the interest-only period, usually five or ten years, the entire amount of the loan may be due in one lump sum known as a "balloon payment."

If you can't come up with the lump sum and can't refinance for some reason, you will lose your home.

Home improvement loan scams

You should always be wary of home improvement contractors who come to you looking for business. If someone knocks on your door or calls you and you haven't been investigating any home improvements, beware.

Often, these scammers will offer to fix or remodel something and the price will be attractive. If your only obstacle is that you can't afford it, he may offer to introduce you to a specific lender who may get you set up with a loan.

If you are given blank papers to sign, don't sign them. Anything can be written in and you've agreed to it. Typically your contractor may use threats or intimidation to get you to sign these papers. He might say he won't finish the job after he's already torn things up.

Don't be surprised if your contractor disappears, never finishes the job, ignores you and otherwise fails to do the work he promised.

Credit insurance scams

You've sought out and applied for a mortgage. Everything is fine, but at the very last moment, your lender needs your signature on papers which have an extra charge, in fine print, that you weren't aware of. It's called credit insurance. You didn't ask for this, nor were you aware that you would be charged for it. Many consumers sign the papers set in front of them without ever looking at what they contain, and that's what the lender may be hoping you'll do, too.

If you want credit insurance, you can buy it yourself. You don't need the loan company's insurance, which is probably much higher than what you may find on your own.

Nigerian 419 scams

This scam just won't go away. The amazing part is that there are still people out there who haven't heard of it and are vulnerable.

These scammers use three methods to contact their victims: email, regular mail and faxes. They ask for help retrieving enormous sums of money, perhaps to move it out of another country. Only you can help them do this, they say. This isn't just a wild request out of nowhere. That would never work. The messages pretend to be official in some way, promising that you're the recipient of an inheritance, for example, or that you'll be helping some charitable cause. There are many, many variations.

If you reply to their invitation, you will eventually be asked for money, again, probably in the form of an "advance fee," and you'll likely also be asked for credit card numbers, your Social Security number, or your bank routing number.

New car/trade-in scams

If you've ever bought a new car and ended up paying hundreds of dollars for a VIN number window etching, you've been a victim of scammers parading as car dealers. You can etch the VIN number yourself if you want and probably for far less money.

It's a good idea to know your credit score before you go car shopping because a common scam is for the dealers tell you that your credit score is very low. Consequently, you don't qualify for whatever special deal they've got running, but you can get a loan at a much higher interest rate. If you know that your credit score is good, you won't be fooled by this scam.

If you trade in a car which still has a loan balance in order to buy a new car, make sure you get in writing that the dealer will pay off your old loan completely within ten days. If you don't get this in writing, you might find yourself with two car payments, one for the old car you no longer have, and another for your new car.

If you have been victimized

The Federal Trade Commission Consumer Response Center's toll-free phone number is: 1-877-FTC-HELP (382-4357) and their website, where you can file a complaint, is

The National Fraud Information Center offers a lot of helpful advice as well as an online complaint form at, or 1-800-876-7060.

FraudWatch International's website is:

Think before you leap

If you need help, try these methods first:
  • Will your employer make you an advance on your pay?
  • Are you a member of a credit union? They are easier to get loans from than traditional banks.
  • Is there a family member who could help you?
  • Can anyone recommend a reputable bank or loan company?
  • Is there a friend or family member who may vouch for you or cosign with you on a loan?
No matter how bad your situation, it won't be improved by getting ripped off. If something sounds too easy or good to be true, you know the old saying, it probably is. Don't let these shady, lazy criminals make things worse for you! For a free online quote from a trusted name go to our home loan center.

Start with our Proven Online System $99.95/month

Get Started
Have a question?
Call us for a Free Credit Check
from a Credit Expert