Advance Fee Personal Loans Are A Scam - Do Not Fall For It

Advance fee personal loans are illegal in many states, and for a good reason. This is how and advance fee personal loan scam works. Scam artists posing as legitimate lenders promise you that you are guaranteed, or almost-guaranteed, to get an unsecured personal loan from them, or their supposed network of lenders, but you have to pay them or some third party a "processing fee" in advance. The advance fee can be any amount but $100 to $300 seem to be the most common.

You may be required to answer credit related questions over the telephone, or even fill out a standard credit application. The scammer on the other end of the telephone will be friendly and sound like he knows what he is talking about. Everything looks legit and unless you took the time to do a complete background check you would never know that you were being set up.

Many advance fee personal loan scammers have moved out of the US to set up shop in Canada. They advertise cheap loans, bad credit loans, and unsecured loans in the classified section of daily newspapers and in magazines. These ads often feature toll-free 800, 866, or 877 numbers, or area codes from Canada, such as 416, 647, 905, or 705. If you think about it for a minute, why would a legitimate Canadian lender be more likely to make high risk loans than a US lender when the cost of collection will be higher?

Direct mail, radio, and cable TV spots are other favorite advertisers. The newspaper, radio or TV station does not have any more information than you do. They will not find out for some time that the ads are fraudulent and you cannot rely on them to screen their advertisers or do background checks.

Legitimate lenders do not require advance fees, and in fact advance fees are illegal in most states. That is not to say that application, appraisal, broker, or credit report fees are not part and parcel of legitimate lending practices. They are. But these fees are almost always taken from the proceeds of the loan after the money has been funded.

Often the advance fees are supposedly going to third-party credit insurers. If anything this claim makes the unsecured personal loan sound legitimate. The story is that the lender can guarantee that you will get the loan because the third party insurer will guarantee payment to the lender and the lender has no risk. The slicker lenders will even fax you professional looking insurance company letterheads. Most are fictional companies or forgeries of real insurance company letterheads with phony telephone numbers.

If you do get involved in an advance unsecured loan scam and do not catch on until the very end here is the tip that almost guarantees the lender is a crook - he will ask you to pay the advance fee by Western Union money transfer. The more brazen will give you a person and not a company name to pay, or will ask you to use a password code which allows him to hide his identify.

(c) 2006 by Peter Boston. Peter is an attorney, writer, and the editor of the profacere.com website, a tips and resource site for personal loans, credit cards, FICO credit scores, and consumer credit information, updated daily on the profacere Personal Finance Blog.

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