8 ways to spot personal loan scams and protect your finances
Key takeaways
- In personal loan scams, a scammer poses as a lender in an attempt to steal your money or identity.
- Red flags for personal loan scams include unsolicited loan offers, promises of guaranteed approval and pressure to apply now.
- If you suspect a scam, promptly report it to the appropriate authorities to help protect others from becoming victims.
Scammers will go to great lengths to cheat people out of their hard-earned money or trick them into sharing valuable personal information. In a personal loan scam, criminals may create fake loan companies or impersonate legitimate lenders — and these scams can be convincing.
If you’re in the market for a personal loan, understanding the red flags of loan scams and knowing how to vet potential lenders can help protect you from scammers
8 red flags to help identify loan scams
With personal loan scams increasing, it’s more important than ever to do your due diligence and keep a sharp eye out for potential signs of fraud. Watch out for these eight red flags of potential loan scams.
1. The lender says approval is guaranteed
Scam lenders may advertise guaranteed approval with no credit check or say that bad credit is no problem.
This 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 process is how they know if you can repay the loan.
Scammers often target their guaranteed approval loan scams to consumers with poor credit histories or financial difficulties who cannot get other loans. “As with a number of online fraud schemes, the offers that are often too good to be true, usually are just that,” says Celia Winslow, executive vice president of the American Financial Services Association (AFSA).
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 do not 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 will typically give people the time and information they need to weigh their options carefully.
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, as 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 and rely on consumers to initiate contact when interested in a loan.
5. The lender’s terms are unusually favorable
If a potential lender offers you a much higher loan amount than other companies or offers a far lower interest rate than you were expecting, tread carefully. Scammers may create 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 what you can realistically repay. They typically reserve the best personal loan rates for borrowers with good credit.
6. The lender has no contact information
Scammers often avoid listing contact information, making it difficult for people to get their money back once the relationship turns sour. If they do provide contact information, they may ask you to reach out to 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 types of 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’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. 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 make sure it matches the bank 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 website address and a padlock icon in the browser bar signaling a secure connection.
Scams are growing more sophisticated every day, so scams may exist that don’t exhibit these red flags. Whenever you’re doing something involving money, be careful, research into the company and don’t exchange money or personal information with anyone or any company that you don’t trust.
What to do if you think you’ve been scammed
If you suspect a fraudulent lender has tricked you, take the following steps as soon as possible to protect yourself from further harm and reduce potential losses:
- 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.
- 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 see what steps to take.
- Report the company to the authorities. Gather detailed information and any evidence of the scam, then contact the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB) or local law enforcement agencies.
- 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.
- 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.
- Watch your credit report. Request free copies of your credit reports from 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 wait for lenders to approach you. However, before submitting personal information to a potential 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 is registered. 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.
The bottom line
Personal loan scammers take advantage of people who need to borrow money. Instead of providing loan funds, they steal your money and/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 offers that come unsolicited or promises of guaranteed approval. Remember, if something sounds too good to be true, it probably is.
Frequently asked questions
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