8 ways to spot personal loan scams

As convenient as digital transactions are, they do come with some downsides. Criminals have adapted to the digital world, costing loan scam victims billions of dollars. The Federal Trade Commission (FTC) estimates losses to consumer fraud in 2023 amounted to more than $10 billion. The largest contributor was investment scams, but personal loan scams were also in the mix.

Personal loan scams involve fraudulent individuals or organizations deceiving and exploiting those in need of financial assistance. Scams tend to target those who are vulnerable and desperate, luring them to hand over personal information or pay upfront fees in the hopes of gaining quick access to a loan they may be denied elsewhere. With this type of crime on the rise, it’s more important than ever to do your due diligence and be alert for personal loan scam artists.

How to recognize signs of loan scams

Knowing what to look for and what steps to take if you suspect a scam might spare you some potentially devastating consequences.

1. Unrealistic guarantees for approval

One of the easiest ways to spot a loan scam is the promise of guaranteed approval. All legitimate lenders require an assessment to determine your eligibility and will usually require detailed information and documentation.

Legitimate lenders always assess a borrower’s creditworthiness before extending credit, making it virtually impossible to guarantee approval without a proper evaluation. If approval is guaranteed, this is a good indicator that the lender is not above board.

Approval guarantees are often linked to consumers with poor credit histories or financial difficulties and may promise credit that’s too good to be true. If your loan is declined, you can improve your chances of qualifying for a legitimate loan without turning to something that looks as promising as an approval guarantee.

2. Upfront fees and hidden costs

If hidden costs are buried in an agreement’s fine print, this should set off your alarm bells, especially if the hidden costs are payable upfront before you receive the loan money. Most reputable lenders don’t insist on the payment of upfront fees and instead deduct the fees from the loan amount or include them in the repayment terms.

If you get “approval” for a loan only to be requested to pay hidden or upfront fees, it’s probably a scam, and it’s time to walk away.

3. Pressure to act immediately

Scammers often employ high-pressure tactics to convince people to make hasty decisions without adequate deliberation. This will often be in the form of limited-time offers or proposals with consequences if they’re not accepted immediately.

Scammers may even threaten or pressure people with legal action or other negative repercussions if they don’t act immediately.

Legitimate lenders value informed decision-making. They are usually willing to give people the time and information they need to weigh their options carefully.

If you’re pressured to act immediately without enough information, it might be a good idea to look at alternate options.

4. Unsolicited loan offers

Another good way to spot a scam is if it comes as an unsolicited offer, usually over email, text message or social media. A telephone offer is an immediate red flag. It’s illegal for telemarketers to offer you a loan or other credit over the phone and ask you to pay for it upfront.

Legitimate lenders typically don’t use unsolicited outreach campaigns or spamming tactics to attract customers. Instead, they rely on traditional marketing strategies.

It’s also a good idea to avoid engaging with potential lenders on social media and go through other official channels instead. Social media platforms have become a hunting ground for cybercriminals and scam artists.

Once you’re familiar with the ins and outs of what a personal loan is and whether you want one, you should go through a trusted loan aggregation platform to look for offers or research a lender’s official website and contact them directly.

5. Vague or absent contact information

Legitimate lenders use transparent communication channels and offer contact information for borrowers to reach them with inquiries or concerns.

Scammers often try not to list contact information to make it difficult for people to get their money back once the relationship turns sour. Always do your due diligence and verify potential lenders’ contact information.

6. Lack of physical address

Legitimate lenders generally operate from a physical location you can verify with basic online research. If a potential lender doesn’t have a physical address, do extra research to make sure it is legitimate.

7. No registration or license

If you suspect a scam, one of the easiest ways to validate the lender is by verifying credentials and regulatory compliance.

Legitimate lenders must be registered with consumer protection agencies such as the Consumer Financial Protection Bureau (CFPB) and hold various licenses to operate. If the lender can’t verify its registration or license status, you’re probably dealing with a scammer.

The Federal Trade Commission suggests contacting your state attorney general or banking and financial services regulator to confirm whether or not a lender is registered in your state.

8. Unsafe websites and requests for personal information

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” in the website address (not just “http”) and a padlock icon in the browser bar signaling a secure connection.

Websites of legitimate lenders should be secure with the necessary data protection safeguards in place. If you’re uncomfortable with a website’s security protocols, it’s a good sign you shouldn’t fill out the application.

Steps to take if you suspect a loan scam

If you suspect a loan scam, take immediate action to protect yourself from further harm and to mitigate potential losses. Here’s what you should do:

1. Stop communication and payments to the scammer. Not only does this prevent further losses, but it also helps to prevent identity theft.
2. Gather detailed information and evidence of the scam. The more details you can remember, the easier it is to report the scam and take the next steps to protect yourself.
3. Report the company to the relevant authorities. This may include the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB) or local law enforcement agencies.
4. Check if you have fraud theft insurance on your homeowners policy to cover losses for identity theft. Homeowners insurance may only cover your expenses to fix issues resulting from identity theft, but it can be helpful in the event of a scam.

How to find a reputable lender

The best way to avoid falling victim to a loan scam is to be proactive. If you take the initiative in approaching possible lenders, you’re far less likely to get scammed. However, you may attract ads from untrustworthy lenders or scammers. Always verify the lender and confirm their regulatory and licensing compliance.

It’s critical to go through legitimate channels to secure a loan. Any lender worth their salt will take the time to walk you through the loan details down to the fine print. They can also advise you on how to manage your personal loan and save money.

The bottom line

If you know what to look for, the signs of loan scams shouldn’t be hard to spot. Educate yourself on the latest scam trends, and don’t ignore the red flags, regardless of how tempting the offer may be. Any guaranteed approval loans, unsolicited offers or loans requiring upfront fees are likely too good to be true. If you’re suspicious about a loan offer, report the incident to the authorities immediately.

Always prioritize transparency, a secure online presence and legitimate registration when looking for a reputable lender. If you are careful and stay informed, you’re much less likely to become a victim of a personal loan scam.

Frequently asked questions

• Can I get a personal loan even if I have a bad credit score?

  Yes. It may not be an option for all lenders, but many legitimate lenders take on clients with less-than-ideal credit scores.

• Are all unsolicited loan offers scams?

  Not necessarily, but if a loan offer falls into your lap, do your due diligence to verify that it isn’t a scam.

• How do I find a legitimate lender for a personal loan?

  Let the reviews do the talking. Work your way through fake reviews and those left by unhappy customers and find secure, reputable sites that offer unbiased feedback on lenders.