It can be difficult to tell a scam from a legit offer, make sure you know the warning signs and common red flags of a scam. Like everyone says: If an offer is too good to be true, then it’s probably a scam.
What are personal loan scams?
A loan scam is a fraudulent offer for a personal loan. This is done either to gather information like your Social Security number or to convince you to pay for a product you won’t receive. In general, loan scammers will present themselves like legitimate personal loan lenders. But certain clues, like a missing physical address, can be good ways to notice a fake loan.
Common personal loan scams:
Phone calls and social media messages are common ways for a scammer to contact potential victims. If you’re ever asked to pay a fee before receiving funds, enter personal information onto an unsecure website or offered a loan you didn’t request, you might be facing a scam.
Advance fee scams
If a lender asks you to provide an upfront fee for any reason, stop your loan application immediately. No legitimate lender will ask you to provide money at any point before it processes your application. Some lenders charge an origination fee for their loans, but this will be deducted from your loan amount before you receive your loan funds. An origination fee should never be paid out of your pocket.
These simpler scams are sometimes combined with phishing scams. In this case, you apply for a personal loan with a fraudulent lender that asks for you to pay a fee to cover processing costs, insure your loan or even guarantee approval before the scammer will process your application.
You’re often asked to pay with a wire transfer or prepaid debit card or any payment method that isn’t traceable. This makes it almost impossible to get your money back.
In a typical phishing scam, you visit a site or open a form that appears to be from a legitimate lender. You might even speak by phone with a caller claiming the need to confirm your loan details. In either case, if the scam is successful, you’re tricked into providing your Social Security number, bank account numbers or passwords, which a scammer then uses to steal your money or identity.
A key rule of thumb when applying for a loan online is to confirm that you’re on an encrypted page. Look for a padlock to the left of your page’s URL, which itself should start with “https,” indicating a secure site. If you don’t see either, the site you’re on may not be legit.
In general, avoid clicking links in any unsolicited email or popup window. If you don’t trust the source of an email or phone call, get in touch with the lender’s customer support directly to ask about the contact.
And if you can’t confirm a lender, an offer or even loan details, walk away and go somewhere else. Better to not have a loan than risk the possibility of having your identity stolen and your bank account drained.
10 signs of a personal loan scam:
Personal loan scams are designed to trick unsuspecting victims but there are common ways to spot a scam. Make sure your lender is upfront. If you spot a red flag, don’t give away your information or money.
1. No credit check required
Most legitimate lenders will perform a credit check to determine if you’re able to repay them. If a lender isn’t interested in seeing your credit score, be cautious. Scammers typically don’t care about your creditworthiness because they are after your personal information. And even if a credit check isn’t required, your lender should at least request proof of income.
2. The lender isn’t registered in your state
CBN requires lenders to register for a license in each state it offers loans in. If you find a business isn’t licensed to operate in your state, even if it’s licensed in other states, don’t respond to its lending inquiries. You might have stumbled on a fraudulent website using a business’s name to make money.
3. Your loan offer is incomplete
The Truth in Lending Act requires all lenders to provide the complete terms of a loan, including the final cost of the principal plus interest, before you sign on the dotted line. If your offer lacks details, contains spelling or grammar errors or otherwise raises an eyebrow, it could be a a sign of a potential scam.
4. You can’t find a physical address
If you can’t find a physical address or contact information on the lender’s website, do not continue with the loan application. Scammers make it difficult to get in touch later, thus avoiding any legal action you might want to pursue against them.
5. Urgent Offer – “our offer expires soon, and you must act now”
If you’re faced with an urgent offer, you’ve likely found a scam. Legitimate lenders offer steady rates that depend on your credit score and finances. High-pressure sales tactics are designed to make you to act quickly, often before you’re able to spot other red flags.
6. The loan requires payment up front
Loans demanding “processing,” “insurance” or even “origination” fees before approval are a scam. A lender asking for payment before it’s processed your application is a scammer looking for quick cash.
7. You’re guaranteed approval
There’s no such thing as a guaranteed loan. For approval, a lender will typically check your credit and verify your information. Scammers lure you in with guaranteed approval so they can collect fraudulent upfront fees.
8. Contacts you out of the blue
Loan scams frequently show up on social media, in email and in your mailbox. There are some lenders that perform a soft credit check to see if you can prequalify for a loan. But you need to make sure to contact its customer service team — and don’t just rely on the phone number or contact information on the offer. Do your own digging, and if you can’t find it on the lender’s website or its social media profiles, it’s likely a scam.
9. No examples of fees, interest or costs
Scammers may build a realistic website designed to throw you off and submit your personal information on a fake loan application. But if a lender doesn’t list its interest rates or provide them over the phone when you call — and encourages you to submit for preapproval to find out, be cautious. This isn’t a red flag on its own, but combined with other warning signs, you might want to check out other loan companies instead.
10. Asks for payment in the form of a gift card
Paying a lender with a gift card is the same as paying with cash, once the money has been used, it’s nearly impossible to trace or get back. No one will ask you to pay with a gift card, and if your lender is pressuring you to do so, you should find a new loan.
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