Payday loan scams are one of the fraudulent acts that both borrowers and lenders need to be aware of. Avoiding these payday loan scams are sometimes inevitable especially to those involved without their knowledge. Having the idea on what these payday loan scams are can help both the borrower and the lender to avoid falling into the trap of scams.
Here are common payday loan fraudulent schemes done by scammers:
- Creating Payday Loan to Fictitious Borrowers
This often happens when there is a middle man or a broker between the borrower and the lender. The broker in this case would create a fictitious application that is submitted to the lender for processing. This type of scams can be perpetrated by parties external to the lending institution like the broker, or a borrower with fictitious identity. Brokers often have less security checks compared to actual lenders. Fraudulent borrowers often get shielded by brokers from lenders background check.
- Payday Loan Kiting and Kickbacks
Kiting is a form of fraudulent act where the funds are being pulled from one source of funding and paid off from another source. Of course, not without kickbacks being done by the borrower. When common fraudulent practice that these scammers do is by paying off a payday loan with an amount coming from another payday loan which is higher in value. Because payday loans often don’t require credit scoring check, it is easy for the borrower to make a payday loan simultaneously.
- Hidden Fees and High Interest Rates
Payday loans are one of the types of loans that are accused as scams because of the high interest rates and fees it charges its borrowers. But as long as these lenders follow the guidelines and policies of interests and fees, they should be fine. As a borrower, you do need to be cautious of lenders who put in extra interest rates and finance charges often excluded or not clearly written in the contract. Find out by getting a review of the lenders to avoid getting into a deal with them.