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Bad debt can often lead people to make snap decisions – often these are the wrong decisions. Some are so desperate to get out of debt that they will consider anything that could help bail them out quickly.
Unfortunately, there are more ‘lenders’ out there than ever before who are keener on fleecing borrowers than helping them get out of their debt.
Loan scams are becoming more common as a result. But what is a loan scam and how can you detect them?
What are loan scams?
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The fraud industry is developed and evolving. When it comes to loan scams, they will often try to entice consumers with an offer of a loan. This ‘offer’ will only be attained through paying a ‘fee’ that they’ll pass off as an admin fee of some sort.
However, once the fraudster gets the money for the fee, they make off with it, never to be seen again.
While it’s not always easy to detect fraudulent loan providers (as they try and mimic those that are registered and legal), there are a few ways to recognise them.
Hayley Parry, money coach and facilitator at 1Life’s Truth About Money, lists the following as red flags to watch out for:
- offers are often ‘too good to be true’
- lack of clarity on repayment costs
- request for upfront fees – she says: ‘An authorised financial service provider would never ask for money upfront before lending you money.’
- they do not consider your credit score
- irregular clauses around the consequences of not being able to pay in the long run.
She adds: ‘Other easy signs are when the firm in question does not allow you to call it back, has no physical address, or where you are forced to make a quick decision or are pressured into doing so – never feel pressured into saying yes if you haven’t checked out the company first.’
How do you know if a company is authorised?
Look up the authenticity of the loan provider through the National Credit Regulator’s (NCR) website: ncr.org.za. Under the section ‘credit providers’, click on the option that says ‘registered’.
Thereafter type in the name of the company offering you a loan to see if they are registered.
Parry adds: ‘Another great aspect of the NCR platform is that you can even look up credit providers who have had their registration cancelled. This is an immediate red flag because this means that they are not regulated and cannot be guaranteed to abide by lawful lending practices.’
Are there quick fixes to bad debt?
Unfortunately, there aren’t. Parry explains: ‘Your credit record is made up of a three-digit score, which is used by lenders to determine whether you qualify for credit, and shows your credit history and behaviour.
‘If you have a history of not paying lenders on time or not managing your credit well, it will reflect negatively on your credit profile, where it will take a bit of time and patience to fix. So you must start by understanding your budget and honouring your monthly payments – not always easy in a tough economy.’
Taking out another loan, unless it’s with an accredited provider with better terms (such as a lower interest rate), won’t be a help. It will just delay the repayment process and could put you into further debt. ‘The reality is that taking up a loan puts you on a financial back foot. It is always better to have than to owe,’ adds Parry.
Get a solid plan
If you’re unsure about how to get out of debt, speak to an accredited financial advisor.
‘A reputable independent financial adviser plays an important role in vetting investment opportunities and ensuring that their clients are protected from scams.
‘Many investors fall prey to scammers because they do not have a solid financial plan. A good financial adviser will explore your unique set of circumstances and implement a long-term investment strategy to help you reach your financial goals,’ says Phiko Peter, client relationship manager in strategic markets at Allan Gray.
