How to spot personal loan scams and protect your finances

Consumers lost over $12.5 billion dollars to frauds and scams in 2024, according to the Federal Trade Commission. Fraudulent bank transfers, cryptocurrency scams and investment scams were among the most common culprits.

Criminals sometimes create fake loan companies or impersonate legitimate lenders in an attempt to cheat people out of their money or to obtain valuable personal details. If you’re searching for a personal loan, knowing how to steer clear of this type of fraud can protect you from costly scams. Start by familiarizing yourself with the red flags and know how to vet potential lenders before giving out sensitive information.

9 red flags of loan scams to watch out for

With personal loan scams increasing, it’s more important than ever to do your due diligence and look for potential signs of fraud. Watch out for these nine red flags of potential loan scams.

1. The lender says approval is guaranteed

Scam lenders may advertise guaranteed approval with no credit check or insist that bad credit is no problem.

Guaranteed approval is a major red flag because legitimate lenders don’t offer approval until they’ve thoroughly reviewed your financial details, including your credit history and income. This is how they determine whether you can repay the loan.

Scammers often target guaranteed approval loan scams to consumers with poor credit histories or financial difficulties who struggle to qualify for loans, hoping they’ll be lured in with the promise of funding.

2. The lender charges upfront fees

Watch out for lenders who say they can approve you for a loan if you give them a large upfront payment. Some try to justify upfront costs by calling them “processing” or “insurance” fees. Others might pressure you to pay the first and last months’ payments or a certain percentage of the total loan.

Reputable lenders typically don’t require payment before disbursing loan funds. Instead, lenders deduct the fees from the loan amount they give you or include them in the repayment terms. The fees that are charged should be clearly stated.

3. The lender pressures you to apply now

Scammers often use pressure and urgency to convince people to act immediately without enough information. For example, they could insist the offer is available “today only.” Or, they could threaten consequences if you don’t apply immediately, from higher interest rates to not being eligible for future loans.

Legitimate lenders let customers make informed decisions. While they might run limited-time promotions to attract customers, they typically give people the time and information they need to weigh their options carefully.

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4. The lender contacts you first

Receiving an unsolicited loan offer — whether via email, text message, social media or regular mail — is a strong warning sign of a potential scam. Be especially wary of phone calls offering loans — it’s illegal for telemarketers to propose a loan or credit over the phone while demanding upfront payments.

Legitimate lenders rarely engage in unsolicited outreach. Instead, they typically use traditional marketing methods like television or internet ads, and rely on consumers to initiate contact when interested in a loan.

5. The lender’s terms are unusually favorable

If you’re offered a higher loan amount or a far lower interest rate than expected, tread carefully. Scammers may extend offers that seem very attractive to lure people who don’t qualify for the loans they want elsewhere.

Legitimate lenders tailor their personal loan terms to the borrower’s financial situation. They look at your credit score, income, employment history and other factors to determine how much you can realistically repay. While there are legitimate lenders that work with bad credit borrowers, the best personal loan rates are typically reserved for borrowers with good credit.

As with a number of online fraud schemes, the offers that are often too good to be true, usually are just that.

— Celia Winslow executive vice president of the American Financial Services Association

6. The lender has no contact information

Scammers often avoid listing contact information, making it challenging to get your money back once the relationship turns sour. If they do provide contact information, they may ask you to contact them in unusual ways, such as messaging apps.

Legitimate lenders offer contact information so borrowers can reach them with inquiries or concerns. They use the communication channels you expect to use when you contact a business, such as mail, phone and email.

7. The lender has no physical address

Some lenders may provide only a P.O. Box address or no address at all. A lack of a physical address is a significant red flag when evaluating a potential lender. Scammers often avoid listing physical addresses to hide their identities and escape being caught.

Legitimate lenders, even those operating primarily online, should have a physical business address where their employees work. Proceed cautiously if you cannot verify a lender’s location with basic online research.

8. The lender isn’t registered in your state

Be wary if a lender offers you a personal loan but isn’t registered to operate in your state. This is a violation of state law and a telltale sign of a scam. The same is true if a lender isn’t transparent about state licenses.

Legitimate lenders disclose their licensing information or will readily offer it when asked. But if you can’t find it, refer to your state attorney general’s website. Your state’s bank regulator should also have this information available.

9. The lender’s website seems suspicious

Criminals may create fake bank or lender websites that look similar to the real sites, hoping you give them your personal information without looking too closely. It’s a good idea to look up company websites on your own, rather than clicking the link a potential scammer provides. Carefully examine the URL to ensure it matches the bank’s name.

You should always make sure that any website that requests your personal or financial information is secure and properly encrypted. Look for indicators such as “https” (not just “http”) in the site address and a padlock icon in the browser bar signaling a secure connection.

What to do if you think you’ve been scammed

If you suspect that a fraudulent lender has tricked you, take the following steps as soon as possible to protect yourself from further harm and reduce potential losses:

1. Stop communicating with the scammer. Do not reply to emails or messages the scammer sends, and do not make any more payments to the scammer.
2. Take steps to secure your information. If you gave the scammer information they could use to commit identity theft, such as your Social Security number, visit IdentityTheft.gov to determine your next steps.
3. Report the company to the authorities. Gather detailed information and any evidence of the scam, then contact the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB) or local law enforcement agencies.
4. Try to get a refund. If you paid the scammer, ask the bank or company you used to send the money if there’s a way to get the money back.
5. Monitor your financial accounts. Monitor your bank accounts regularly for any suspicious activity or unauthorized transactions and consider placing a fraud alert on your accounts.
6. Watch your credit report. Request free weekly copies of your credit reports from all three credit bureaus via AnnualCreditReport.com. Consider placing a credit freeze to protect yourself.

How to vet potential lenders

Being proactive is the best way to avoid falling victim to a loan scam. If you get a personal loan by applying to reputable lenders yourself, you’re far less likely to get scammed than if you work with lenders that approach you. However, before submitting personal information to any lender, protect yourself by:

• Checking the lender’s online reputation. An online search can be one of the easiest ways to spot scams. Search the lender’s name alongside terms like “scam,” “fraud” or “rip-off” to reveal potential issues with the company.
• Confirming the lender’s state licenses. To legally offer you a loan, a lender must be registered and licensed in your state. The FTC suggests contacting your state attorney general or banking and financial services regulator to verify a lender’s registration.
• Looking at unbiased reviews. Many reputable sites, including Bankrate, offer personal loan reviews. You can read about borrowers’ experiences before sharing any personal information.

Bottom line

Personal loan scammers take advantage of people who need to borrow money. Instead of providing loan funds, they steal your money or your identity, leaving you worse off than you were before you applied for the loan. When you’re looking for a personal loan, stay alert for red flags, such as unsolicited loan offers or promises of guaranteed approval. Remember, if something sounds too good to be true, it probably is.

Frequently asked questions about loan scams

• Are all unsolicited loan offers scams?

  Not necessarily. Some lenders may send prescreened offers of credit, especially credit card issuers. But if a loan falls into your lap, do your due diligence to verify it isn’t a scam. Pay close attention to the terms of the credit and ensure that it comes from a licensed lender.

• What are the dangers of falling for a loan scam?

  The personal and financial information you provide when you apply for a loan, such as your Social Security number, contact information and employer information, is valuable to criminals. Scammers can use your information to commit identity theft, open fraudulent accounts or make unauthorized transactions. They may also sell your data on the dark web for others to misuse.

• Is it safe to get a loan online?

  Yes, it’s safe to get a loan online as long as the lender is reputable. There are reputable online-only lenders, and many brick-and-mortar lenders also allow customers to apply for loans online. However, scam lenders also lurk online, so be sure to carefully vet any potential lender before submitting an application.

• How can I increase my loan approval chances?

  If you’ve been denied a loan due to your financial status, work on improving your credit. Try to make payments on time, every time, limit new credit applications and prioritize paying down existing debt. You might also want to work with a top-rated credit repair company if errors are causing your score to be low.