Should You Ever Pay a Fee to Apply for an Installment Loan?
In a nutshell – NO!
That is a bit of an oversimplification, though. The world is filled with many different kinds of lenders, and each of them have different standards and practices. For example, if you are applying for a home loan, or a large loan to buy property, you may be asked to pay for the appraisal of the property. This is commonly accepted, and not that unusual.
But being told that you need to pay just to apply for a loan? That is something that should arouse your suspicions.
Borrowing money is never free; lending is a business, and lenders make their money through charging fees and collecting interest. That’s how the business works. But when a lender attempts to collect “up-front” money from you before the loan, or before you have even applied, you may be dealing with a scammer and not a legitimate lender.
“Your Installment Loan is Assured… as soon as you pay a Fee.”
A loan is never assured, and a lender telling you this or leading you to believe this before processing your application is either acting irresponsibly, or committing an act of fraud.
This is sometimes called an origination fee, an application fee, or a processing fee. Always be wary when you look for a loan and are required to pay the lender first. If there are attached fees, they should be brought to your attention beforehand, but not paid until after the application process has been completed.
Other possible red flags:
- Pressure to sign a contract immediately
- Asking for your credit card information before your application has been processed
- Asking or demanding payment before you are given a written loan offer
- They cannot or will not answer questions about their business (ie, if they are a direct lender or a loan broker, if there is a balloon payment)
- If using an online lender, do not submit any information unless the URL or web address begins with HTTPS. The S stands for “secured.” Never submit personal information through an unsecured site.
It doesn’t matter if you are considering a payday loan, an installment loan, or even a car title loan. These rules apply to every kind of loan. Do not get fished in by advance-fee loan offers!
Closing Costs
For a mortgage or a home loan, there are always “closing costs” attached. The term closing costs is a blanket phrase that covers several different fees. While these fees are standard, not all closing costs are created equal.
You may be expected to pay for, among other things, a loan origination fee, an appraisal, points, private mortgage insurance, or FHA, VA, and RHS fees. Be more wary of things like underwriting fees, broker rebates, loan processing fees, loan origination fees, or a mortgage rate lock fee. Moreover, you should go through every item involving in the closing costs, line by line, and make sure none of the fees are excessive.
Remember, closing cost is a blanket term, and it’s pretty easy to hide something under a blanket.