 
Advance fee loans scams are run by unscrupulous individuals who target those individuals with a poor credit history and who have been turned down for loans from reputable lenders. These scams specifically target those in financial distress. Their scam rests on guarantees that you can access a loan or some other type of credit, but only after an initial payment or 'application fee' is received. These fees can range from as low as $100 to several thousands of dollars. Once the 'company' has received your advance fee payment, they disappear. You never see a dime, and they run off with your money in hand.
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It is important to note that the majority of lenders and lending institutions are operated by legitimate people. Advance fee loan scams are not operated by legitimate institutions or individuals, but instead are operated by those who misrepresent facts and the availability of credit and loans. Understanding who is legitimate and who isn't is the most important aspect of avoiding these scams.
How do you know it's a scam?
There are important cues that can alert you to a possible scam.
1) Where did you hear about the company?
Most of these fraudulent people will advertise their services in a variety of media. Some can be found in the classified section of newspapers, on the Internet, on television or radio, or through flyers. Unfortunately, a number of legitimate institutions advertise the same way. The important thing to understand is that just because a company is advertising in these ways, this does not ensure their legitimacy.
2) How can you contact the company?
Many of the fraudulent ads you see will feature a '900' number to get in touch. Understand that '900' numbers result in telephone charges to you, the consumer. This is one very easy way to detect a potentially fraudulent company. Most legitimate companies will offer an '800' "888" or "866" number, where the consumer does not pay for the call. This is a stronger sign that the company may be legitimate; however, there is no guarantee, as toll free numbers are very easy to come by. The important point is to stay away from '900' numbers.
3) What method of delivery is used by the company?
Fraudulent companies avoid using the US Postal Service. Instead, they will use couriers. They do this because it makes it easier for them to avoid detection. Mail fraud is a very serious offense, and these companies will usually shy away from any involvement with the US Postal Service.
4) The loan is 'guaranteed'.
No one can guarantee a loan without first assessing an individual's credit and financial history. Any advertisement or company who 'guarantees' a loan without this assessment should be viewed with extreme distrust.
5) Loans should not cost upfront in any situation.
You do not 'pay' for a loan. Legitimate institutions charge the consumer interest on a loan, which is how they make their money. Any institution that wants to charge you upfront for a 'guaranteed' loan or even for consideration for a loan should not be trusted.
6) Inaccurate guarantees of "pre-approved" or "pre-qualified".
Fraudulent companies often misrepresent what these two terms mean. Understand that any "pre-approved" credit offer only requires your verbal or written acceptance for that offer. A "pre-qualified" credit offer only means that you've been selected to apply for the offer. You must still apply in the normal fashion, and you can still be turned down.
7) Know the Telemarketing Sales Rule.
Any telemarketer that contacts you cannot ask you to pay anything and cannot accept any payment for their services for any 'guarantee' or suggestion that you will, in all probability, be able to access a loan or credit, until you successfully get the loan or credit. Doing so prior to the loan or credit being secured is illegal.
8) Payment is requested before having a written offer in your hands.
This is against the law. It is considered fraud.
The most important thing to understand in avoiding this or any other credit scam is to know that almost all lending institutions follow very similar rules. If you have been turned down by a couple of reputable lending institutions, and suddenly someone is guaranteeing you a loan or credit, think twice. Why would they do this when no one else will? This should be an obvious cue that all may not be as it appears.
The best way to avoid these scams is to check every company that approaches you with your local consumer protection agency, local Better Business Bureau or your state Attorney General. Never pay anyone or enter into any 'agreement' with any company that you can not validate.
Read more about advance fee loan scams on the FTC website. The Internet Fraud Watch offers tips about avoiding advance fee loan scams.
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