What is a high-interest loan?
A high-interest loan consists of a party lending money to another party, in general very quickly, in exchange for a high APR. APR stands for Annual Percentage Rate, which is the annual rate charged for borrowing. If you want to take out a loan with a high APR, you have to expect that you will have to pay a lot of money in exchange for borrowing that money (in addition to paying the amount back).
Why can it be risky?
These loans can be very dangerous for the person taking them out, notably depending on the interest rate that is linked to it. Indeed, since they can be granted very quickly, these types of loans have in general very high-interest rates that can go from 100% to 199% and even 400%. Depending on the time that you agreed on to repay the loan and to pay the interests, it can sometimes be too short and leave you with a more perilous financial situation than you were at the start.
How to identify loan fraud?
Of course, as with any kind of transaction, loan scammers exist. These organizations will try to steal your money hiding under the appearance of a real loan organization. A few checks you should pay attention to in case you want to take out a loan:
- The interest rate is unclear. The provider is very vague about the actual annual interest rate. This is already a sign, if you think that some details are blurry or that the party you want to borrow money from is rather shady, you shouldn’t do it in order to avoid unnecessary risks.
- The interest rate is very high. The interest rate is higher than the average. In an effort of saving your financial assets, you should always go for the loan with the lowest APR. Moreover, scammers will not hesitate in offering loans with exorbitant APR. Always compare the rate you are being offered with 2 or 3 well-known banks in your country.
- No credit rating check is needed. This is a very bad sign! The company wants to lend you money without taking your credit rating into consideration. Who wants to lend money without knowing if you can pay it back? Few companies will do that in general, and the ones that will be considered as scammy.
- Get money fast. The loan can be granted in minutes or hour by the lender. While some countries have systems in place to check your credit rating real-time, this is not the case in most nations. A good loan company needs time to do the proper verifications. Scammers do not care; they are just interested in your personal and financial details.
For more information, you can consult our general article about “How to Recognize an Online Scam?”.
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