With the banks tightening their lending criteria, it has become very difficult for financially struggling South Africans to access loans from reputable institutions, leading them to borrow money from fraudulent lenders.
To make sure that you do not become a victim of fraud, we have listed 10 common signs of a potential loan scam.
1. Unregistered lender
All lenders, even online ones must be registered with the South African National Credit Regulator and operate under the National Credit Act.
So, if you stumble upon a personal loan offer from an unauthorised credit provider, run – you are about to be played.
2. No credit checks
I have seen a lot of loan pamphlets and sites that state that you can get a loan even with bad credit or when blacklisted. As someone who is in dire need of money, this might be great music to your ears because you wouldn’t have to worry about being rejected for your loan request.
Authorised lenders are in the business of charging a fair interest rate depending on the interest of the loan. The only way they can know the risk is by checking your credit report and score so, you should be worried if any other lender promises you money without checking your credit record. You are either going to get a super high-interest rate, about 35% a year or higher.
At this rate, even if a lot of the loans are not repaid, the lender is going to make money. From all this, it is clear that a lot of these “no credit checks” loans are just outright scams. They will lure you in with that promise and before you even notice what is happening, they will drain your account.
3. Guaranteed loan approval
“100% loan approval guaranteed” is one of the taglines that fraudulent lenders use to get people hooked on what they are offering. In reality, not everyone qualifies for a loan. A lender cannot promise you a smooth application process and approval before they review your application.
4. Upfront fees
This is a strategy that most of these scammers use to make money. No legitimate loan site or provider will ever charge you an upfront fee before you get the actual loan. Some charge an origination fee which is taken out of the loan before it hits your bank account and that only happens once your loan has been approved. In some cases, it might be worded as an application fee or a processing fee.
When you thoroughly think about it, lenders are not in the business of processing loan applications and making loans. Why would a legitimate lender charge you a fee for the possibility of making money off your loan?
Never pay an advance fee for any personal loan, that’s just not it. Even if the loan site seems legit, there’s absolutely no reason to pay any fees upfront.
5. No transparency
Fraudulent lenders are not always honest about the loans they offer, the fees, and the charges you will have to pay back. To catch your attention on their offer they normally advertise their loans as cheap knowing very well that they will be adding extra costs to your payments once you accept the loan offer.
Reputable lenders are transparent about their loans and fees, you will often see all of this published on their website.
6. Bad reviews
Reviews are very important, other people’s experience can be helpful. Before you commit to any loan, make time to go on various social media platforms and sites to search what people are saying about that specific lender.
You might be surprised with what you find, people who have experienced bad service from them would have filed a complaint.
7. No physical address
The lack of a physical address on their website is considered a red flag. A legitimate lender either has a physical address or a postal address stated on their site. The address is not only important for the clients to visit physically but, it shows accountability that the business can be contacted in case of legal actions or any other enforcement measures.
8. Unsecured website
Considering that you will be sharing your personal details on these sites when applying for the loan, the safety of your information should be guaranteed. Be cautious, some scammers put an extra effort into cloning secure websites and pretend to be legitimate. Check the URL of the site, it should be https and not http (without the ‘s’), the s stands for secured and if it is not there then you should be more alert.
9. Misspelling and grammar in emails/SMS
Most of these scammers will spam you with endless emails and SMS’s that are full of grammar or spelling mistakes. Beyond the spelling, you can also spot their weird greetings like “dear” or word choices that just don’t sound right.
It is also very important to look at the email sender’s address. Most of their email addresses look dodgy. An email address from a reputable lender normally includes the name of the business at the back half of the address. So, be on the lookout, most of these scammers use Yahoo, Hotmail, or Gmail.
10. Pressure to sign
No matter how desperate you are, never fall into the trap of being pressured to take up a loan. They will be telling you that there is a deadline for the offer so you will have to apply and accept the offer as quickly as you can before it expires. This could be a ploy to get you to make rash decisions.
What to do if you are scammed
If you suspect that you might have been scammed, you will have to report to the authorities and assist others to not be victims of the same threat. Following are a list of the things you can do:
- Collect all documentation you need to support your claim. Emails or screenshots of your communication will help you build a case.
- File a complaint with regulatory agencies as soon as possible.
- Inform the people close so they don’t fall prey to the same threat.
- Protect your identity and accounts; if you shared your account details with the scammers, take the necessary actions to block access to your account and protect yourself against identity theft.
- Let this be a lesson for you to be alert and do thorough research before you take up any loan.
- Find out how to verify credit providers in South Africa.
How to Spot a legitimate lender
Now that we know what to look out for in scam loans, the following are a few pointers of how to spot reputable lenders:
- The business is registered with the National Credit Regulator and can be verified on the site.
- Verifiable physical address and working contact details published on their website.
- Positive reviews.
If you are in dire need of a loan, there is a list of reputable personal loans you can view and compare.