Are online loan companies safe and legitimate?
Applying for a loan online is extremely convenient, allowing you to get the process started at any time from anywhere. The popularity of online banking has led to the rise of numerous lending companies offering online application and closing services for loans.
But just how safe is borrowing from an online lender?
The short answer is that it all depends on the company. For every secure online lender, there is at least one more that uses predatory lending practices or is an outright scam. Unfortunately, it’s not always easy to know if an online loan company is legitimate and safe; however, if you follow some simple guidelines, you can protect yourself while still enjoying the perks of online borrowing.
Types of Companies
To compare online lenders, you must first understand the four primary types of companies that offer Internet loans:
· Brick and Mortar Banks Some financial institutions that operate brick and mortar branch banks offer online lending services. You can easily spot these types of companies by looking for a list of branch locations on their websites. Typically, brick and mortar banks are safe options for online borrowing.
· Online banks Some retail financial institutions offer the majority of their services online and have few or no branches. To identify a legitimate online bank, look for a logo or disclosure that shows the company is a member of the Federal Deposit Corporation or FDIC.
· Non-Banks In addition to banks that offer online loans along with other services like deposit accounts, companies that only deal in online loans are available. With these types of companies, you’ll need to conduct some research to establish their legitimacy.
· Loan Referral Services A loan referral service provides you with rates from several different lenders. Like online loan companies, referral services may not always be safe bets. Since these companies often charge fees just for finding you a lender, you may want to avoid them altogether and look for a loan company on your own.
Know Your Lender
When you begin to research a non-bank online loan company, start on the website. On legitimate websites, you should find links at the bottom of the page for a privacy policy. Most reputable companies also have a legal notice or a terms and condition section on their sites.
Once you locate these links, navigate to the pages and look for the company’s actual name and address. Always deal with an online loan company based in the United States; foreign companies may not have the same regulations governing them to protect you from unfair lending practices.
Do a Background Check
Armed with the name of the company and its location, check out the Better Business Bureau website and conduct a search for both the company name and the name of the website, if they are different. The Better Business Bureau assigns letter grades of A through F for companies. A poor grade indicates a company that you should avoid.
After checking with the Better Business Bureau, contact your State Attorney General’s office and ask if any complaints or actions are pending against the company. You should also conduct a general Google search on the company name; if the company is fraudulent or unscrupulous, you’ll often find reports on consumer complaint websites.
Be Wary of Fees
While application and closing fees are not uncommon with any type of loan, any company that asks for an exorbitant application fee should raise suspicion. Some fraudulent loan companies require applicants to pay a certain percentage of the loan up front in fees without any attention of approving the loans. Avoid companies that want you to wire fees somewhere; as well most legitimate lenders will accept a credit card to cover the application fee.
Consider the Payment Method
Most legitimate online loan companies offer direct deposit of the money borrowed into a checking or savings account. Use caution with non-bank companies that offer to send you a paper check or to pay your creditors for you. In both situations, the loan company could collect an application fee and all of your personal information and then issue you fake checks or no checks at all.
Read the Fine Print
No matter what type of online lender you select, always carefully review your loan contract before agreeing to anything. Make sure you know your interest rate and understand the repayment terms and any fees that you can accumulate for late payments. Ask questions about things that seem confusing or suspicious. Ultimately, trust your gut. If you have a feeling that something’s off, look for another lender. Using caution can help you protect your personal information and keep you from being swindled.
