Most people need to borrow money at some point in their lives, whether for a large purchase or in an emergency. With so many lenders now on the market, it can be difficult to know who to trust and who will give you the best deals. Sometimes the best deals are too good to be true. Many scam lenders have appeared in recent years looking to cash in from those needing a loan. Therefore, it’s important to know what you should look for if you want to be sure that you’re borrowing from a responsible and authorised lender. This article will highlight the things you need to know about applying for a loan safely and what you need to look for to avoid borrowing from unauthorised or scam lenders.
Be Sure They Are FCA Registered
The most important thing you should look for when applying for a loan is that the lender is registered with the Financial Conduct Authority (FCA). If the lender you’re considering isn’t on the FCA register, they should be avoided. The Financial Conduct Authority is an organisation responsible for regulating companies and lenders that offer credit to consumers. Without FCA registration, you cannot ensure that a company offers credit or loans responsibly and legally.
If you want to check if a company is on the FCA register, then you can enter the company’s name or FCA registration number into the FCA register. The company’s registration number will normally be displayed at the bottom of their website if they are a legitimate lender, but always be sure to search the register as some scam lenders will display false information to appear genuine.
You can also check with the FCA if a company is known to have operated illegally or irresponsibly, as they hold information on scam companies. Some companies will set up under the guise of a legitimate company by using false information to trick consumers into borrowing from them. Therefore, it’s always best to check the FCA website for information regarding the company you are thinking of borrowing from. If you get caught out by these false websites, it can be difficult to recoup your financial losses as these sites are not regulated by the FCA or protected by the Financial Ombudsman.
As the FCA is responsible for the regulation of financial lenders, any registered lender must adhere to the regulations by law. Many rules are set out by the FCA that are in place to protect you as a borrower. For example, short-term lenders can never expect you to pay back more than 100% of the total sum that you borrowed. This means, if you borrow £1,000, a lender cannot request that you pay more than £2,000 in repayments. Also, the interest rate applied to any loan that you take out from an FCA registered lender must not exceed 0.8% per day. These regulations are put in place to avoid consumers being caught in the trap of never-ending and increasing debt. If the lender you are considering isn’t following these rules, avoid them and report them to the FCA.
Be Aware of Fees
When looking into a loan, remember that different lenders can charge different fees for setting up a loan. Responsible lenders will always make you aware of any fees that you will incur when borrowing upfront before you decide to commit to a loan. Likewise, always ensure that you are aware of any fees added to your repayments and what these are for before committing to a loan. Failing to do so may mean that you are paying back much more than you expected. Sometimes you’ll pay a loan set-up fee as well as interest on the loan, so always read the small print and do your research before taking on this financial commitment.
Weigh up Your Options
There are many legitimate lenders out there, so finding the right one for you can be tough. Remember that you shouldn’t rush a decision to make a financial commitment that could take you several years to pay back. Weigh up your options and find the best loan that suits your circumstances. Some lenders may allow you to pay back your loan over a longer period but may charge you a higher interest rate to do so. Others may charge a lower interest rate if you borrow a larger amount of money. Don’t be tempted to borrow more than you need. Always make sure that your decision is well thought out and that you can be sure that you’ll be able to make the repayments. Applying for a loan safely also requires you to be a responsible borrower. Although the FCA puts measures in place to help consumers avoid getting into unmanageable debt, you still have a responsibility as a borrower to ensure that you are borrowing safely.
Responsible lenders will always have a secure website, so this is something that you should look out for. The address to the website should start with “https://” as opposed to “http://”, which indicates that the data you share with the website will remain secure. Ensure that “https://” remains at the beginning of the website address throughout your exploration of the site and not just on some of the pages. There should also be a padlock symbol displayed next to the web address in your browser to show that the website is secure. To ensure that all browsing that you do is secure, consider investing in additional cybersecurity options that scan the websites you visit for threats against data theft.
If you enter payment information into a website that isn’t displaying “https://” at the beginning of the web address, you risk your information being accessed by hackers. Furthermore, the same applies when you log into a website. Any login details that you enter may be at risk if the website is not secure. Responsible lenders will always take website security measures to ensure that their customer information remains safe. If a lender’s website doesn’t have this type of security in place, you should question their validity as a reputable lender.
Check Reviews of Lenders
Most of us now check reviews before we buy something online. This shouldn’t be any different when it comes to looking into financial products. Always do your research about a company before choosing them as your lender. Learn about the experiences other consumers have had with them and the positive and negative things people have to say. If a company has mostly bad reviews, then it’s probably best to look elsewhere.
You should also remember that good reviews don’t always mean a company is legitimate. Scam companies can have fake reviews to lure consumers, so only ever consider reviews from either verified borrowers or highly established review websites. Also, if the reviews you see are mainly written as part of blogs, be aware that these may not be legitimate. Some scam companies will create fake blog posts to create the illusion of a legitimate company or pay affiliates to advertise their company through positive reviews.
Although a loan with no interest may seem very enticing, remember that it likely comes with a catch. Phrases such as “nothing in life is free” or “if it seems too good to be true, it probably is” are good to keep in mind when you see an interest-free deal. Although many legitimate lenders do offer loans or credit of this type, this may not be the best way to go if you’re looking to borrow money safely. An interest-free deal will usually only apply to a loan for a short time. This means that if you fail to pay the loan back in this period, you may end up paying much more than you anticipated. You’ll likely pay a very high interest rate on a loan after an interest-free deal, so always be sure that if you do decide to borrow any money on an interest-free basis that you can pay it back within the set time frame specified.
Many people sign up for interest-free deals with the best intentions of paying their loan back in time, but this doesn’t always happen. Unexpected expenses can get in the way, and you may be unable to pay off your balance in time, so sometimes the most sensible option is to avoid these types of deals altogether. This will, of course, depend on your circumstances.
Never Borrow More Than You Can Afford
Applying for a loan safely means taking the safest option in all areas, not just when it comes to the lender’s regulation or registration. The borrower should consider many factors in regards to borrowing money safely. It is paramount that you only borrow what you can afford to pay back. If you anticipate that you may not be able to make the repayments at any point, then you shouldn’t apply for a loan. Missing repayments can come with substantial consequences, even if you borrow from a legitimate lender. It is your responsibility to ensure that your borrowing is justified and responsible.
Loans Over Credit Cards
If you’re considering credit options, you should try to pay back at least 10% of your balance each month if you want to clear any debt in a reasonable timeframe. Interest can quickly add up on credit cards, and many people are tempted to pay the minimum balance each month. By doing this, you’ll likely be paying the minimum balance for years as the debt increases due to interest. Therefore, a loan can often be a better option in terms of your financial safety. With a loan, you’ll know exactly how much you’ll need to pay each month and will know the date that the balance will be cleared. A responsible lender will always provide you with all of the information you need to understand how much you’ll be repaying.
Remember Cooling-off Periods
Legitimate lenders will always offer a cooling-off period when you apply for a loan. If a company doesn’t offer this, don’t go through with your application. A cooling-off period allows customers to change their mind about their loan and repay it without incurring any extra charges. As a consumer, you have a 14 day cooling-off period from when you sign your loan agreement (or whenever you receive your copy of the loan agreement if this is later) to change your mind. If you decide within 14 days that you no longer require the loan, you’ll have 30 days to pay back what you borrowed in the first instance and any interest that accumulated. In addition, you won’t have to pay back any additional fees, as these will be refunded to you. Cooling-off periods on financial products are offered for your protection and safety as a borrower.
Get Quotes Before You Apply
The amount that you’ll pay back on a loan can sometimes be more than the advertised rate. Usually, the advertised rate is the representative APR which can differ from person to person. The rate can change depending on your credit rating or financial history. Some people may pay less than the representative APR, and others may pay considerably more. Therefore, before you sign a loan agreement, you should get a quote and determine how much you’ll be paying. It may be more or less than you expected.
Be Aware of Variable Rates
Some loans have variable interest rates, which means that the level of interest you pay on your loan can go up or down over your loan term. A loan with a variable interest rate may be tempting as you may get a better deal initially, but remember that you should only apply for a loan like this if you are sure you’ll be able to afford repayments if the interest rate changes. A responsible lender will always provide information regarding variable rates and what you may be expected to pay before finalising your loan application. Always be sure to read all of the terms and conditions attached to a loan before signing an agreement.