If you are applying for a debt consolidation loan, you probably have a lot of debt, and need a way to combine all of your debts into one manageable monthly payment. Unfortunately the constant worry about money makes people desperate, and desperate people sometimes fall for some common debt consolidation loan scams. Here are the top three scams, and what you need to do to avoid them.
The most common debt consolidation loan scam is the money up front ploy. In this scam, you are promised a debt consolidation loan, even if you have bad credit or a previous bankruptcy. The catch is that before you get the loan there is an upfront processing or administration fee, which in many cases is excessive.
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You pay the up front fee, and then either you either never hear from the debt consolidation loan company again, or they tell you that there was a problem with your loan application. They keep your money, but they don't give you the loan.
Avoiding this scam is simple: never pay an upfront fee to apply for a loan. Paying a fee is fine if you are getting a service, but only agree to pay the fee as part of the loan.
The next big scam is the bait and switch scam where you are promised one thing, and then at the last moment you get something else. For example, you are told that you can have the loan at an 8% interest rate, but when you come in to sign the loan agreement the lender tells you that due to unforeseen circumstances the interest rate is 15%. Since you are counting on the money, you sign the agreement.
This is also a simple scam to avoid. Don't agree to any last minute changes, and don't count on receiving the money until you actually receive the loan.
The final big scam is hidden charges. We all know that we will have to pay interest on the loan. In some cases the interest rate may be artificially low to make the loan appear more attractive, but there are a number of hidden charges that dramatically increase the cost of the loan.
These charges may be for life or disability insurance on the loan, or even unemployment insurance or creditor insurance. If you want insurance, talk to an insurance agent. Make sure that all charges an fees are explained to you in advance so that you can calculate exactly what you are paying.
Debt consolidation loans can reduce the interest you pay and combine all of your debts into one monthly payment, but do your own research and be aware of these debt consolidation loan scams so that you are the one who benefis from your debt consolidation loan.
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