OK, so 3 of the most common warning signs include:
1. Does the lender look legitimate with a Credit Consumer License?
All reputable lenders must be Authorised and regulated by the Financial Conduct Authority, having registered with the Information Commissioners Office and have a Consumer Credit Licence (CCL) Number. All this information should be easy to find out from their website.
Quite simply you should not deal with any company who does not have a CCL, for there are plenty of reputable lenders out there that do.
2. Does it sounds too good to be true?
The unfortunate fact is, that for someone who is paying the price for past financial mistakes, the only available options will typically be far more expensive than the ones available from their bank.
The available options will typically range from around 50% APR for guaranteed long term options, to up to 5000% APR for small shorter term borrowing!
So if something does not ring quite true, there is every chance that something is not right.
This is a question that will often stand you in good stead throughout all walks of life, if something sounds too good to be true, it usually is.
There are a great number of legitimate lenders who will happily offer options to people who have been shunned by the banks but there are always contingencies put in place to reduce the risk to the lender (i.e. guaranteed loans).
Have you been approached by a lender who is prepared to skip the requisite checks? These checks are a crucial part of the application process for all quality lenders and if your lender is prepared to skip this, there is every chance that the offer you receive will come with an astronomical APR.
Deals that seem too good to be true are usually just that.
3. Are You Expected to Pay Upfront?
This one can be a little tricky and should always be approached with a slightly more open mind for the following reasons.
If you are using a broker, you will be a charged a fee by the broker for the use of their services. If however, you have approached your lender directly, any up-front fees should be viewed with extreme caution.
If you are asked for any up-front payment for any of the following reasons, the alarm bells should again begin to ring.
- Payment is needed up-front for insurance
- An initial up-front payment is required to activate the agreement and verify your personal details
- Payment is required to allow a third party to set up the details
These are all extremely unlikely to be true and will almost certainly lead to a loss of money.