Category: living safely

How to Avoid “Processing Fee” Loan Scams

So as it turns out, you need startup money to fund your new business venture, but you’re afraid of falling victim to one of the many “loan scams” out there-fraudulent companies that demand an up-front processing fee (often going up into the thousands range), but when you eagerly pay them in the hopes of getting that loan, you suddenly realize you have that much less to fund your startup than when you began.
If you’ve already fallen victim to one of these scams, you’re not alone. Even the smartest people in the world can let their guard down and be taken advantage of. That’s why the number of these scams has been steadily rising over the past few years. The best way to prevent getting scammed is to thoroughly check the lender’s background and reputation before you give out any personal information or send them any money. Anyone who guarantees you a loan without thoroughly reviewing your credit history or business plan is usually hiding something. If they ask you to send them an up-front “processing fee” overnight, that’s a definite red flag. Overnight mail is how scammers fly under the U.S. Postal Service radar, who would then be able to track them down.

Sometimes, money isn’t the only reason scammers are after you. Many fraudulent loan companies will also sell your personal information (including your Social Security number and bank account numbers) committing identity theft. This type of scam can spill over to cause you unending trouble for your business as well as your personal life. For your own protection, insist on getting a written version of the loan application. If they balk or otherwise continue to pressure you, it’s a good indication they’re trying to scam you.

The best possible move you could make is to check out the lender with the Better Business Bureau ahead of time to find out about any issues or complaints have been filed against them. If possible, try to request financial statements of the lender that specify their assets. Don’t discount your local resources, either; small-business clubs and other local business groups may have lenders who are far more trustworthy and well-established.

Although it’s no secret that people with bad or no credit will have a far more difficult time getting financial assistance from a reputable lender, all is not lost. There are some lenders out there who may consider a high-interest loan for business ventures (or owners) they consider high-risk, with a stipulation that the rate will be lowered when your business shows positive cash flow or the capability of covering a debt; this cost reduction will help you as your business grows and becomes successful.

Just as with everything else in life, there are no shortcuts, and the same holds true for getting a loan. When all else fails, just remember the age-old saying: if it sounds too good to be true…it’s time to find another lender.


Considering an Interest Only Loan?

An interest only loan is a personal or home loan for which the borrower will only make payments on the interest accrued by the principal, saving the capital amount for future payment. At the end of the term – sometimes several years later – the borrower has the option of payment the capital off in one lump sum or refinancing to another loan.
In most cases, lenders require that borrowers pay back an interest only loan at the end of the term, requiring the remission of a large sum of cash. No payments are made toward the principal during the term, which means that the capital left will be the amount originally borrowed. Typically, interest only loans are made over the course of one to five years, though some interest only loans can be in excess of ten or twenty years. If another loan is taken out against the principal, the balance will be amortized for the remaining term.

The most common circumstance in which interest only loans are sought is when an investor purchases a property with the intent of re-selling it quickly for a profit. Since the investor is required to only pay on the interest, he will be less out-of-pocket when the property is finally sold.

An individual or family can also benefit from an interest only mortgage loan if they plan to stay in the house for only a few years. This is a similar situation to that of a real estate investor; they will spend less money on the mortgage loan repayments than if they had taken out an interest and principal loan.

Unfortunately, however, problems can occur when it comes to interest only payments. One of the largest complications is when an investor or individual experiences unforeseen expenses, and is not able to make good on the loan once the term has expired. Similarly, it can be difficult to refinance such a loan if you are unable to make the principal payment.

Advantages of an Interest Only Loan:

#1. Lower Monthly Payments – You will have much lower payments when you are repaying only on the interest, and it will be easier to sell the property for a profit if the loan is for a mortgage on a house.

#2. Fixed Interest – Most interest only loans come with a fixed interest rate versus an ARM (Adjustable Rate Mortgage) so you will be able to foresee what your loan payments will be each month.

Interest Only Loan Disadvantages:

#1. Market Variables – if the market falls and your property is devalued, you will be forced to sell and take it as a loss.

#2. Unexpected Expenses – if you end up having to spend your money on something else, you could wind up in a bind at the end of the term.