8 signs of a personal loan scam | bank fee (2023)

Consumers lost a total of nearly $5.8 billion to fraudulent practices in 2021 - an increase of more than 70% from 2020, according to theFederal Trade Commission. And would-be scammers prey on those most in need of help or most likely to accept a bogus offer.

If you are not careful, you could become a victim of a personal loan scam, in which you could lose money. However, you can learn how to verify that a lending company is legitimate and avoid falling victim to scams.

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(Video) 7 Warning Signs of Personal Loan Scams

1. Lender guarantees approval

Really reputable lenders make it clear that they need to check their credibility, and they sometimes get reports from all three major credit bureaus (Equifax, TransUnion, and Experian). Most lenders need to know if you have aAccount payment historytimely and complete to ensure you are diligent in repaying a loan.

Fraudulent companies don't care about your credit score. They tend to look for high-risk borrowers who are likely to default on loan payments and face excessive fines and late fees. Stay away from lenders who guarantee approval or make claims like:

  • "Everyone's in!"
  • "Your past doesn't interest us. You deserve credit!"
  • “Bad credit or no credit? No problem."

Some reputable lenders offerbad credit. These lenders consider more than just your credit history when determining your eligibility. However, these lenders still often ask for your income, employment information, and educational background before offering you a loan.

Running away:Make sure you work with a lender that cares about your past financial history, even if it's not great.

2. Lender is not registered in your state

The Federal Trade Commission (FTC) requires lenders and credit brokers to register in the states where they do business. Check the lender's website for a list of states where they legally do business. If a lender you're interested in doesn't list any registered states, you may be dealing with a loan scam.

Checking the registry is an important step to ensure you are dealing with a legitimate company and to separate scams from legitimate companies.

Running away:Make sure the lenders are registered in your state before submitting bank and personal information. If they don't operate in your state, they are not authorized to lend you money.

3. Lender requires prepayment

Some scammers have been known to request prepaid debit cards, gift cards or bank information from borrowers. Scammers often claim that they need the information for insurance, warranty or fees. This is a scam. Legitimate financial institutions may charge a fee for your application, assessment or credit report, but these fees will be deducted from your loan.

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A prepaid card is a big red flag. It's virtually as untraceable as cash, and you can't report it as stolen if you've given it to a creditor. If you provide your bank information, it is possible to file a dispute with your bank or credit union, but it may take some time for your claim to be investigated. Furthermore, you cannot recover funds stolen from you.

Running away:A reputable lender does not require money upfront to receive the loan proceeds. If the loan is funded, you must accept a wire transfer, direct deposit, or check that you can deposit into your checking account.

4. The creditor calls, sends a message or knocks on the door

If you receive a loan offer over the phone, in the mail, or even through a door-to-door application, be careful. According to the FTC, it isillegalBusinesses in the US may offer credit over the phone and ask you to pay before delivery. It is a violation of the telemarketing sales rule. However, it is not illegal for creditors to send generic advertising to consumers via email.

Some scammers go to great lengths to rip off consumers, including using the name of a legitimate creditor. It's also not uncommon for scammers to change the name and number that appear on your caller ID to trick you into believing they're the real deal, notes the FTC.

You can protect yourself by ignoring the requests and contacting the lender directly through their secure website or by calling their online customer service hotline. If the lender has no record of contacting you, this is your confirmation that you were dealing with a scammer.

Running away:A reputable lender will not approach you over the phone, direct mail or door-to-door. Look for lenders who advertise through traditional and mass online media.

5. Lender has no physical address

Each lender you are interested in must provide you with a physical location. Run it on Google Maps, just in case. Some personal loan scam companies list addresses that are actually vacant lots, so it's important to check this out.

Avoid the lender if you cannot find any physical address signs. Many fraudulent companies cannot be traced, which allows you to avoid legal consequences.

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Running away:Do not do business with a company that cannot provide you with a physical address, and always verify that the address is legitimate before proceeding.

6. The creditor is asking you to act immediately

Don't fall for the call of urgency. One of the characteristics of personal loan scams is that you are given an immediate deadline to sign for a loan, as the offer expires quickly – in about a day. Or the creditor may say that something bad is about to happen, like having your driver's license revoked or a lawsuit being filed if you hang up without acting quickly.

Lenders who use these high-pressure tactics may be up to no good. It could be a trick to trick you into making a hasty decision without taking the time to do your research to find out what scam they are running.

Running away:Avoid offers with immediate deadlines so you can make a choice. You must have days and possibly weeks to accept a loan offer.

7. Lender is not transparent about their fees

Scammers avoid posting their charges prominently on their websites or disclosing them upon request. They might also say you've been approved for a loan and charge you a fee up front. While some reputable lenders don't list their fees on their websites, fees should be disclosed during the application process and before you sign anything.

Hidden fees charged after loan approval is a red flag. The FTC suggests that you stay away from any company that follows this practice, especially if you're told the start-up money is for things like "processing", "insurance", or "paperwork".

Running away:Legitimate lenders may charge application, credit report, or assessment fees, which you'll know about before filling out an application, because real lenders will make you aware of these fees. If there are surprise fees that you are not aware of, it could be a scam.

8. Sounds too good to be true

The reality is, if a personal loan offer sounds too good to be true, it probably is. Legitimate lenders won't just call you out of the blue with an irresistible offer of credit. You probably won't qualify for a loan with an incredibly low interest rate without having to apply and go through a tough loan retraction.

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Also, don't expect a letter in the mail from any bank that guarantees instant approval without you having to formally apply. And an offer to get the loan proceeds quickly is another telltale sign of a personal loan scam.

Running away:No matter how good a personal loan offer is, if it looks like a scam, it probably is.

Common types of credit fraud

Most types of credit fraud are aimed at withdrawing money early or providing such unforgiving credit terms that borrowers are hit with late fees or other fees. Some popular ones are:

  • Credit rate scam:Scammers may try to offer you a cheap loan in exchange for hundreds or thousands of dollars in upfront fees. After receiving these fees, they cut off contact without providing any money.
  • Fraud without credit check:Some legitimate personal loan lenders consider more than just your credit score when approving a loan, but some scammers promise funds without a credit check. This is a red flag as your credit history is an important factor in assessing how risky you are as a borrower.
  • Private Student Loan Forgiveness Scams:The federal government offers student loan forgiveness programs for federal student loans. If a company comes to you and promises to waive your personal student loans, it's probably a scam.
  • Debt consolidation scam:debt consolidationit can help you speed up the process of paying off your debt and save you money in the long run. If a debt consolidation company is pushy or asks you to stop contacting your creditors, chances are they are trying to scam you.

Who is most at risk of a loan scam?

Scammers target people who are either unaware or having trouble getting credit through traditional means. Borrowers with large debts, seniors and people with bad credit are most at risk from these scams.

For example, no credit check loans and payroll loans can be particularly attractive to people with bad credit.bad credit loansfrom reputable lenders can come with high interest rates. Unfortunately, some scammers buy lists of people who have researched or applied for these types of loan products online, as they are an easy target.

If you fall into a high-risk category, beware of companies promoting a loan product that sounds too good to be true for your situation. When in doubt, check to see if the business is licensed in your state or contact your state attorney general.

What to do if you think you've been scammed

While no one wants to think they've been the victim of a scam, it can and will happen. The good news is that there are several steps you can take if you are attacked.

  • Gather your documents:If you have emails, screenshots, or other documentation that helps your case, gather them to present to authorities when it's time to contact them.
  • Contact your local law enforcement agency:By filing a police report, you have an official record.
  • Contact person for supervisory authorities:After calling the police, it's time to get in touchYour Attorney General, or FBI,die FTCit's atbest business office. With this information, these agencies can better serve and protect other consumers.
  • Talk to family and friends about:As scammers develop their tactics, it's important to help others stay informed.
  • Submit a fraud alert with one of the major credit bureaus:A fraud alert tells lenders that you may be a victim of fraud and that they should contact you to verify your identity before extending a new loan. File it with any of the big credit bureaus - Experian, TransUnion and Equifax - and it will alert others.

How to Recognize a Reputable Lending Company

Even if you have below-average credit, many companies offer legitimate loans that you may qualify for. Below are some steps to follow whenlooking for a good lender.

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  • Check the contact information:A lender's phone number, email address, and physical address should be readily available on the website, even if it's an online-only lender.
  • Review online reviews:Customers who post on Google and Yelp have the best insight into the experience of working with a lender.
  • Check if you are registered:Legitimate lenders must register with government agencies before lending. Check with your state's attorney general if you're unsure whether a lender is safe.

Secured approvals, missing licenses, initial demands, and unsolicited offers of credit are all signs of a personal loan scam, and you should at all costs avoid having lenders engage in this type of behavior.

Even if you don't have good credit, many personal loan lenders offer loans to needy borrowers, regardless of credit history. Don't fall for a scam. Instead, find a company willing to work with you in your area.


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