With the number of online lenders growing, so too are the number of fraud cases for personal loans. There are many reputable online lenders who are positively influencing the financial landscape, yet there are just as many businesses running scams on the unassuming.
If you are in need of fast cash or don’t have stellar credit, it can be tempting to turn to a personal lender who makes generous claims about approval and turn-around times. However, a fast loan could be damaging to your credit if you aren’t sure of who you are dealing with.
What Is a Fast Loan?
Quick loans are short-term loans that typically offer up to $1,500 to an individual without the lengthy process typically encountered at a bank or traditional financial institution. Traditional loans usually require a tremendous amount of paperwork, high credit scores and a hierarchy of approval decisions. Once approved, it takes days, or even weeks, to get the cash deposited into your account. Fast loans are an alternative to this lending process and provide access to greater funds.
Fast loans are typically found through private lenders across Canada who won’t require collateral to secure the loan. This means borrowers won’t have to use a personal asset to guarantee repayment. While this can make it easier to qualify for a fast loan, it can also cause problems for the borrower. Interest rates on these loans tend to be much higher since lenders consider an unsecured loan incredibly risky. The higher the risk, the more the lender will want to recoup potential losses through interest rates or fees.
Who Uses a Fast Loan?
Individuals needing extra money might turn to a payday or quick cash loan as a way to borrow money. Research shows that nearly 4 percent of Canadian households use short-term, high-cost loans for some financial need. This same report indicated that nearly 45% of respondents use a quick loan to cover unexpected expenses like car repairs. While 41% of respondents rely on these funds to help with necessary, expected expenses (such as a utility bill).
Use fast loans to consolidate debt accounts or to make a large purchase. A loan could also be used to jumpstart positive credit health or to pay off credit cards that are negatively impacting your credit.
How Does a Fast Loan Impact Your Credit?
While the details of your loan terms are unique to the company providing it, one of the signature elements of a private, quick cash lender is an application process that doesn’t require a credit check. Defaulting on your loan doesn’t usually involve a report to the three major reporting bureaus when a credit check isn’t required. This is generally the case if you’re using a payday loan. However, a lender can still check your credit history and report your payment history without receiving your PIN. Your name, date of birth and address are enough to report you.
Though the reporting from a lender may not directly impact your credit, the financial fallout from getting a fast loan could hurt your credit. Extremely high interest rates may leave you further in debt than when you started. If you have to borrow from somewhere else to pay back a loan or you have to avoid paying certain bills in order to make the loan payment, you can do serious damage to your credit.
How Can You Protect Yourself When Needing a Fast Loan?
If you’ve got unexpected bills to meet, such as for medical care or a house repair, you might not be able to wait on a traditional lender to help you out. You may be looking at a quick loan to cover a vacation or high utility bill. Keep the following tips in mind when looking for a lender so you can safeguard your credit.
1. Do Your Homework
While you have the primary responsibility of protecting your credit, the Canadian government is also looking out for you. Federally regulated lenders are required to provide borrowers with information concerning a personal loan. This includes:
- Loan amount
- Loan terms
- Interest rate and whether it’s variable or fixed
- Service charges or fees
- Payment amount
- Options services that were accepted
If you are working with an alternative lender, the requirements may be specific to territorial or provincial regulations. Always research a potential lender, starting with any regulatory compliance issues before moving on to consumer reviews or complaints. You can check with the Consumer Protection Agency or with an agency such as the Financial Services Regulator Authority of Ontario.
2. Recognize the Red Flags
The Canadian Anti-Fraud Centre reported $75.5 million lost by Canadians as a result of fraud within the first few months of 2022. Though there will be different application processes across lenders, there are some red flags to watch for to avoid being a victim of fraud when applying for a fast loan. A legitimate lender won’t ask you to pay a fee or other costs upfront until it approves a loan. If you can’t find a physical address for a lender or if it isn’t registered in your territory or province, it could be a scam. Don’t fall for urgent offers, guaranteed approval claims, unsolicited contact or contracts with missing information.
3. Don’t Overextend Yourself
Limit your use of quick cash opportunities. Being dependent on personal loans to make it from one financial crisis to another could lead to problems with your credit. While it can be useful for emergencies, find alternatives when possible.
Work With Trusted Lenders for a Fast Loan
With so many scams online, you need a source that consolidates your loan options and limits the use of your personal information. LoanConnect is a search engine that will customize your loan options from reputable Canadian lenders. Enter your information into a safe and secure system and get personalized offers with the best rates within minutes. Several fast loan options are available, so apply today to find out what you could qualify for.