How to Find a Legitimate Loan Lender

How to Find a Legitimate Loan Lender in Canada

Every year, millions of people in North America are affected by lender fraud in some form or another. The fight to find a legitimate lender is a real concern to potential home buyers, students, and other borrowers. Worldwide, billions of dollars are stolen from people trying to get valid financing.  This trend of scamming borrowers is labeled a “financial epidemic” in some countries.

By definition, a legitimate lender conforms to the rules or laws in their jurisdiction. Fraudulent creditors swindle money from consumers through dishonest schemes. Not all scams are illegal; some practices are actually permissible but ethically deplorable and predatory in nature. Financing scams have many faces. Consumers can never be too careful or get too much information about these crimes.


- Mortgage Loan Rip-Offs
- Predatory Auto Loans
- Student Loan Cons
- Prevention Suggestions

Mortgage Loan Rip-Offs

Even seasoned homeowners fall prey to unscrupulous lenders when trying to refinance or make home improvements. The top real estate cons include:

  • Flipping loans occurs when a predatory lender repeatedly convinces a homeowner to refinance their mortgage loan and borrow money from their home’s equity. Over time, the high finance charges and points bury the consumer in high debt. 
  • Escrow fraud. Buyers are contacted by a person who pretends to be a title or escrow company employee. The borrower is told that money is required to complete the transaction. Instructions are given where to wire money. Once it is sent, the cash and the scammer disappear. 
  • Relief from foreclosure. Thieves look at public records to find homes that are in the foreclosure process. They contact desperate homeowners posing as a government agency that offers help in exchange for “fees” to stop the process. Again, the criminals run to the hills once they have cash in hand.

Real estate schemes may be avoided by dealing only with known financial institutions. Another safeguard is to verify phone numbers and addresses on original loan documents to make sure they match. Finally, homeowners who face foreclosure should contact options offered through their local government housing associations.

At Smarter Loans, all mortgage companies we deal with have been reviewed and approved by a panel of industry experts, so that you know you are in good hands when you deal with them. Pre-apply for a mortgage here!

Predatory Auto Loans

This scam involves car dealers that find it more profitable to get people out of the car buying market as fast as possible. To do so, they give buyers possession of a vehicle before financing is complete. The tactic is known as spot (as in “on the spot”) delivery. The typical borrower targeted for spot delivery is a man or woman with poor credit and low income. While on the surface it may seem like a harmless sales tactic, some jurisdictions have banned its use for good reason.

Dealers defend this practice by claiming it helps people get into cars quickly, even on nights and weekends. They also assert that this type of financing is essential to their companies. Actually, it is a predatory loan trap. When all is said and done it is the dealership that receives the maximum benefit and profit, not the customer. This auto loan financing is also known as a yo-yo scam and plays out as follows:

  • The buyer finds a car they like and tells the salesperson they have damaged credit.
  • A few minutes later, the credit manager delivers the “happy news” that the purchaser can still get approved for financing.
  • When the loan application is complete, the excited buyer is allowed to drive off the lot.
  • A few days later the dealer tells the buyer there was trouble with financing and they must return the vehicle. When the buyer returns, the scenario changes. In order to keep the vehicle, he must accept financing with outrageous rates and terms. The dealer also requests a higher down payment.

There are several elements to spot delivery that make it a scam. The buyer is intentionally misled to believe that the car belongs to them when they take possession. The dealer then uses pressure to get the consumer to renegotiate new and more costly financing terms. Some dealers threaten to repossess the car or report it to the police as stolen. Obviously, the masterminds behind this scheme know that the majority of buyers will comply for two reasons:

Spot deliveries victims are usually consumers that are the least able to afford the sky-high interest rates and bloated car payments. Credit managers at dealerships are well aware that they are more likely to default on a loan. The dealerships will repo the car, pocket the money paid up to that point, and resell the car to another victim.

The laws regarding this type of financing vary. While banned in some jurisdictions, spot delivery is lawful in other locations, subject to government regulation. The way to prevent being a victim of yo-yo financing is to know what to look for, and then walk away from any deal that seems suspicious. Consumers that have already been scammed should report the dealer to the local reporting agencies. 

Student Loan Cons

Most former college students know the pangs of repaying student debt. There are several scams that take advantage of this and trick young people into believing they are eligible for loan forgiveness – for a price. Victims are usually graduates that are struggling to make student loan payments.

Illegitimate companies advertise as student debt relief facilitators. Students that show interest in getting help are pressured to sign up for a service that costs a certain amount over and above their regular monthly student loan payment. The borrower is required to re-certify income annually and the monthly cost increases.

Very often, what the borrower pays for are government payment plans they could have gotten for free. Or they pay for a service that doesn’t help with their debt at all. Student loan borrowers should never deal with third party student loan debt relief companies. Federal governments offer a number of repayment plans and guidelines for legitimate debt relief with no charge for enrollment.

How to Protect Yourself from Loan Scams

One of the main warning signs of a lending scam is a request for advance payment. Scammers fool people into believing that the payment will guarantee loan approval. The real fact is that no lender can guarantee a loan in advance. And reputable companies do not ask for a loan payment up front. To lower the risk of being scammed, borrowers should:

  • Get a lawyer to review a loan agreement before signing. If the lender balks at this request, there is little doubt a scam is in play.
  • Research potential lenders with the Better Business Bureau and other local financial registration agencies.
  • Avoid giving out personal identification and bank account information in advance.
  • Beware of lenders that offer financing at prime rates to borrowers with bad credit.
  • Refuse to sign a contract with blank spaces or unclear terms.

Further, a loan applicant should never sign an agreement that indicates that the deal is conditional. Genuine lenders will supply a firm offer with all terms in clear detail prior to requesting a signature. Not all scams can be eliminated. But with the abundance of information and resources available, more consumers are obtaining fair financing one legitimate loan at a time.

Smarter Loans is proud to recognize our financing partners as trusted companies that Canadians can feel safe to deal with. Find a trusted loan provider today!

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Sheila Kay

Sheila Kay is an author, ghostwriter and editor residing in the Atlanta, GA area. Among her favorite writing genres are creative nonfiction, self-improvement, and finances. Her first published book, PTSD and the Undefeated Me, is a memoir which has been a stepping stone to her involvement with mental health advocacy for military and civilian men and women. She is currently working on the first fiction novel to be published under her name. For more information or to purchase her books, visit Sheila’s Author Page on