How to Spot a Loan Scam

Hard money loans may be the answer to remaining competitive in the real estate investment industry. These personal loans are fast and flexible. You can get the cash you need to purchase an investment property without having to jump through the hoops of a traditional bank loan. Unfortunately, loan scams do exist, and many people don’t realize they are targets until it’s too late.

It’s not always easy to spot a loan scam, but there are red flags to watch out for. Fraudsters have the intention of taking what they can from their victims or selling their personal information. Protect yourself and watch for the following warning signs.

Upfront Money

This is the biggest and most obvious sign that something isn’t right. Typically, the scammer will explain that asking for money is standard procedure to cover an application fee, processing fee, or deposit. However, this is rarely the truth.

In a legit transaction, any fees will be rolled into the total loan amount. If you do pay anything upfront, it will most likely be for an appraisal or credit report, and the amount will be small. Also, scammers like to make their payments difficult to trace, which is why they ask for the money to be wired or sent through a prepaid debit card.

Unsecured Loans

Most loans require some sort of collateral, which in this case, is the property you’re investing in. Hard money lenders are more flexible on credit scores because they use the property as collateral. If you come across a lender who is happy to give you an unsecured loan, be smart. This would be a huge risk for the lender to take on. If you defaulted on the loan, the lender wouldn’t be able to recover anything.

Numerous Loan Options

It’s not common for lenders to offer many different types of loans. Reputable lenders usually specialize in one type of lending such as business loans, personal loans, student loans, or real estate loans. Scammers, on the other hand, tend to offer many loans so that they can fool as many people as possible.

Guaranteed Approvals

While it’s a great feeling to know you’ll be approved for a loan, it’s not a good sign. Even though hard money lenders are flexible, they won’t approve just anyone. Credible lenders want to know that their money will be paid back to them. They will review your payment history and credit report to assess their risk in borrowing money to you.

Shady Online Presence

Know who you are dealing with. Take time to visit the company website that the lender works for. Legitimate lenders have the money to build a website, and they are happy to share information about their loan programs. Take note of the email addresses (i.e. are they generic or do they have a domain name?) as well as licensing information. Trust signals are important and not to be ignored.

In the end, it’s always best to listen to your gut when it comes to borrowing money. If something doesn’t feel right, it probably isn’t. If you want to be competitive in the fix-and-flip industry, call First Equity Funding. Our team of hard money lenders is professional and trustworthy.