The hard-core money industry is notorious for high-interest loans. There are many providers out there in which you can find legible lenders and also many fraudulent lending practices. If you are considering hard money loans, then be careful about how to go about it. Here, we will discuss a few things to be considered to understand fraudulent money lending practices.
Fraudulent practices in money lending
1.Excessive fee and other charges
One thing you have to look for definitely is the fee charged by the lenders. There could surely be a fee apart from the interest while availing a loan. However, you shouldn’t have to pay an excessive amount as a fee while borrowing money.
In order to identify whether a provider demands an excessive fee, you may do some shopping around first to explore various lenders and their charges. You may compare the rates charged by each and then decide whom to go with. Shopping around will give you a fair idea about the average market rate.
If you find a lender in consideration tends to charge a larger fee than others around, then you should most likely wait to find another more feasible one. However, it is also to be noted that the one who charges the most minimal fee may not also be the right choice, but you have to check the legitimacy of the provider to go ahead with.
2. Advance Fees
In many cases, a professional lender will let you pay the money you owe at the backend. This is why most of the hard money loans are positioned s balloon loans by making it possible to make interest-only payments over a longer period. However, many money lenders may ask for an up-front fee. If you find any lender asking for a substantial amount as an upfront fee, then you may have to think twice.
In fact, there could be a closing cost associated with many loans, but it is not a good practice to pay the lender upfront. There is no stoppage for an unscrupulous moneylender from looting your money. So, always be skeptical about giving money to someone who offers you a loan in the future. The legitimate lenders always know that the borrowers don’t have the capital in mind, and that is the reason why they apply for a fund advance.
Upfront fee scams are considered to be one of the top scams in the financial marketplace. The scammers may give some ‘too good to be true’ advertisements to lure in their prey. They may promise something like anyone could get low-interest loans, irrespective of their credit history. They may next ask for an upfront payment as processing fee but vanishes soon after that. In any case, at the end of the day, you have to pay more in terms of interest if your credit score is low.
3. Loan points
You need to understand the hard money lending sector is largely different from the traditional loan industry. So, you may notice many strange things about how different loans here are structured. Sometimes, the hard money lenders may also tend to charge for loan points. However, it is best if you avoid borrowing from any lender who is charging loan points. The lenders like Libertylending.com put forth clear and straightforward terms to avoid any confusions and possibility of scams.
In the case of traditional loans, the loan points are considered by the lender in order to run down interest rates and also accommodate some questionable credit. However, the initial idea behind hard money loans is that you need not maintain good credit to qualify for those. So, you must be questioned about it when you see a hard money lender is trying to charge you for the points to sanction a loan.
4. Peer lending scam
A new type of peer-to-peer loan scams on many online platforms is very common now, which the borrowers need to keep conscious of. You may see some attractive messages on platforms like Craigslist, Reddit, Facebook Messenger, or other online platforms like “low-interest small term loans.” They may say that low credit rate or even bankruptcy may not be a problem. People tend to fall for it.
In fact, there are many verified peer-to-peer lending platforms out there like Prosper, Lending Club, and Funding Circle, etc., which have become so popular in business funding. In fact, these platforms function with the power of numbers. There are thousands of investors on each of these sites who decide whether to buy a loan or a portion of the loan which meets their desired standards. So, instead of getting it from a bank or established lender, you can raise money from many investors collectively becomes your lender.
No doubt that reliable lending platforms could be your apt sources to get business financing. However, the unscrupulous peer lenders who use even the common platforms may put you in trouble. The most common peer lending scams look more similar to the above-mentioned advance fee scams. The major difference is that the solicitation of the peer-to-peer comes from individuals offering peer loans. They may ask for some upfront payment to secure a loan.
By falling prey to peer lender scammer, you are not only losing your money but your identity too. If you are planning for per lending, then only rely on the reputable peer lending sources and never fall for a money wiring service for getting business loans and also don’t offer any upfront payment to anyone for funds.
Some other funding scams to stay away from are:
- Funding kit scams
- Claimed to be government sponsored loans from unreliable sources
- Credit repair scams
- Ghost investor scams
- Loan broking scams
- Debt collection scam
In fact, many of these loan scammers may also prowl the websites which connect the businessmen and angel investors as well as venture capitalists. However, you need to understand that there is no easy way to do this. Anyone who is planning to invest in your business or offer you a loan must try to ensure that they are investing their money into something profitable. So, you need to spend a lot of time and effort in order to build such connections, convince them with your plans, and get them convinced to get funds.