Scam-proof your loan

Looking for a personal loan? Bring your common sense with you. If you don’t make smart decisions, you could end up being scammed—losing money when you need it the most. Here are some ways of avoiding loan traps.

First of all, don’t believe the first brochure you read. Look around and see what the rates and terms are, and be particularly careful of really low loan rates. . Sometimes the lender sneaks in teaser rates that will adjust later or gives you a quote for a different type of mortgage product.

Second of all, find out your own credit score. Some companies will scare you into thinking that you have such a bad credit rating that you’d be lucky to get any rate (which, in turn, will make you more amenable to accepting their terms on the loan). No, don’t fall for that one: get your credit rating yourself. You may actually be surprised; many of us have better scores than we think we do.

Third of all, don’t sign any document that has blanks or contains incorrect information. Remember that everything you are signing becomes a legal fact. If you sign a document that doesn't have all the particulars filled in, then whatever the lender writes in will be forever held against you. And if you don't understand something, don't sign it.

Fourth of all, always reread a contract before signing it. Some very sneaky companies change the interest rates and loan amounts after negotiation. Protect yourself from this and comb through the documents. If there’s an error and they correct it, disappearing from the room to print out a new copy, then reread it again when they bring it back. All of it, not just what you changed. Hey, better safe than sorry.

Double-check that the interest rates and loan amounts all add up at closing. Sometimes a lender will try to sneak a different rate in, hoping you won't notice. Make sure that everything is correct.

And of course, never lie about anything. Fraud can land you in jail. So don’t ever overstate your income, understate your expenses, or give false information about your company just to secure a loan. If you get caught, the consequences will be very, very expensive. Think Jail. Think seeing your business license revoked. Think having your company investigated by attorneys and seeing every detail of the investigation in your local newspaper.

Another important rule of thumb: borrow according to your needs, not according to the sales talk you get. If someone calls you and offers you a refinance, you should probably turn it down. If you don't need to refinance, don't do it. Some shady lenders use this as a way to make money off of you by charging large fees and offering refinances every year, or more often.

This is related to another tip: don’t let a lender talk you into a larger loan. Only borrow what you know you can afford. Don't let any lender ever talk you into a larger loan.

The key to avoiding fraud is in being educated, asking a lot of questions and understanding that the lender is not your friend. Be friendly, but be cautious. And most of all, be smart.