Key takeaways
- Scammers often demand upfront fees, promise guaranteed approvals, or pressure you to act quickly.
- Protect yourself by verifying lenders’ licenses, checking for secure websites, and reading online reviews before applying for a loan.
- If you suspect a scam, stop all communication, secure your accounts, and report the incident to the authorities immediately.
When you need a loan, the last thing you want is a scam artist trying to steal your money. Understanding the red flags for personal loan scams and how to vet potential lenders is vital for your protection.
Fraudsters are everywhere and will go to great lengths to cheat people out of their hard-earned cash. Recently, they have been targeting consumers looking for online personal loans.
In fact, the Federal Trade Commission (FTC) reported that consumers lost over $10 billion to fraud in 2023. Imposter scams, including fake loans, were the most prevalent.
It can be hard to know whether you’re dealing with a legitimate or fake lender. The fakes get better all the time. It becomes harder to protect your finances and personal information.
Here are ten signs the loan you’re considering may be a scam and what you can do if you suspect fraud.
10 Signs of personal loan scams
Personal loans are a very common way to borrow money. You can use a loan for debt consolidation, to fund a major purchase, to do home repairs, or to cover unexpected expenses. The problem is not all loans are from legitimate lenders.
There are many different types of loan scams, and they are evolving constantly. Many can appear quite convincing. Even so, there are warning signs that an offer may not be quite what it seems.
Here are prevalent red flags to watch out for.
Asking for money upfront
Legitimate lenders do not ask for payment in exchange for a personal loan. They may charge fees like an origination fee or application fee. But they will deduct these fees from the loan amount after you’re approved. The fees will be clearly stated in your repayment terms.
Loan scammers may demand money upfront for ‘processing’ or ‘insurance.’ Always refuse such requests.
If your lender asks for payment in an unusual way – an Apple or Google Play gift card, a payment app like Zelle or Venmo, or cryptocurrency, walk away. A genuine lender will not ask for this type of payment. These payment methods are harder to trace, and you are less likely to get your money back.
Advertising guaranteed approval
Be wary of lenders promising guaranteed approval or who say that bad credit is not a problem. Scammers often target consumers who need help getting a loan due to poor credit histories or financial difficulties.
Reputable companies can never guarantee that you will be approved. They will review your finances, including your credit history and income, to determine if you can afford to repay the money.
It’s true that specific lenders specialize in bad credit loans and put less emphasis on your score. These lenders will at least do a soft inquiry on your credit and review your financial information before approval.
Text messages or robocalls
Out-of-the-blue text messages, robocalls, emails, social media notifications, or even regular mail inviting you to apply for a loan are suspect. They can be a sign of phishing scams, especially if you have not previously contacted the lender.
Genuine lenders will not call you. They wait for you to make the first move by prequalifying or directly applying. Your bank or credit card provider may send you a pre-approval offer. Or an online lender may send a follow-up after you’ve checked their site for offers. In either case, you have a prior relationship with the business.
If you receive unsolicited outreach from a lender, don’t trust it. Ignore the message. Do not respond at all.
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Pressuring you to act now
Scammers often use high-pressure sales tactics. They may convey a sense of urgency to get you to act without thinking. For instance, they may insist that the offer is only good today. Or threaten you with a higher interest rate if you wait.
Trustworthy lenders provide ample time for you to make informed decisions. They know that borrowing money is a big commitment. They will give you time to go over your finances and compare offers. While a legitimate lender may run a limited-time promotion, it will not rush you into a deal.
The offer looks too good
If the loan looks too good to be true, it probably is. An ultra-low interest rate, despite poor credit, is likely a scam. A much larger loan amount where other lenders offered smaller loans is easily a scam.
Always be suspicious of loans with very favorable terms, especially if your credit score falls below 690 on the FICO scale. Scammers want to create very attractive offers to lure people who typically don’t qualify into thinking they’ve hit the jackpot.
A good tactic is to compare offers from multiple lenders. Reputable lenders tailor their loan offers to the borrower. They consider your credit score, income, employment history, and current debts to determine what you can afford to repay and what terms to charge you. Borrowers with high credit scores and low debt-to-income ratios will receive the best terms.
If you receive an offer that sticks out as exceptionally good, it may very well be a personal loan scam.
The website isn’t secure
Scam artists are getting better at creating fake websites that look like the real deal. They aim to steal your personal information by posing as a legitimate financial institution.
Check the URL to make sure it matches the bank name. Search for the lender’s website on your own rather than clicking on the link given.
These fake sites will lack standard security measures. Look for ‘https’ rather than just ‘http’ and a padlock icon in the browser bar. These indicate a secure connection.
Never put your personal or financial information into an unsecured site or one you cannot verify.
New
No state registration
Lenders are legally required to register in the state they operate in. Their credentials and licensing should be available on their websites. Look either near the bottom of the page or on the ‘About’ section.
It’s a red flag that they are not a reputable business if you cannot find their license and registration information.
Before you apply for a loan, check with your state attorney general’s office to verify their license. The National Association of Attorneys General lists each state’s attorney general so you know who to contact.
No physical address or contact information
Reputable lenders will have clear contact information, just like any other business. You should be able to contact them by phone, mail, and email. They should have a physical address, not a P.O. box. Even online lenders will need a physical address where their employees work.
A lack of transparency on how to contact them indicates you’re likely working with a scammer who doesn’t want you to follow up.
Your suspicions should be raised if you can’t easily find contact information or they ask you to contact them in unusual ways like messaging apps. Walk away if a basic online search doesn’t turn up their physical location. Scammers often hide these details to evade legal actions and make it challenging to get your money back.
Requesting too much personal information
One type of loan scam is to trick you into sending money. Another common scam is to steal your personal information. They can then sell your data, commit identity fraud, or take out a loan in your name.
Be cautious if a lender asks for excessive personal details, such as bank login credentials, personal identification numbers (PINs), full credit card numbers, your mother’s maiden name, or answers to security questions. Scammers can use this information to steal your identity.
Legitimate lenders will ask for your name, address, social security number, proof of income, employment details, permission to check your credit score, loan purpose, and bank details. Providing this information helps them assess your financial situation and determine if you’re eligible for a loan. This information is sensitive, which is why it’s so important to be sure the lender is reputable and the website is secure.
Bad online reputation
Before engaging with a lender, do a little digging. Check customer reviews and ratings. Look at the Better Business Bureau, Consumer Affairs, and the Consumer Financial Protection Bureau to see what others are saying. A pattern of negative feedback or poor online reviews is a strong warning sign of potential personal loan fraud.
Reddit can be very helpful as a community platform where other people share their experiences. You can find out if your potential lender has a good or bad reputation, legitimate or not.
What to do if you suspect a scam
If you suspect a potential scam or become a victim of loan fraud, take immediate action to protect yourself from further harm.
1. Stop communicating. The more you interact with a scammer, the longer they’ll continue targeting you. And the more chances they’ll have to steal information. Don’t hesitate to block them entirely once you recognize the signs of a scam.
2. Secure your information. If you gave the scammer your social security number, passwords, or usernames you need to address this immediately. Change your accounts and go to IdentityTheft.gov to report the issue.
3. Gather evidence. Evidence of fraud can help protect you if the scammer opens accounts in your name. Save emails, texts, and letters between yourself and the scammer. Take screenshots of their website and gather bank or credit card statements showing fraudulent activity.
4. File reports. Take your evidence and report the loan scam to your local police, the Federal Trade Commission (FTC), and the Consumer Financial Protection Bureau (CFPB). The agencies can then notify the public. Filing a report gets the scammer on law enforcement’s radar and puts your case on record.
5. Try to get your money back. If you used a debit or credit card to pay the scammer, you may be able to get all or some of your money back. Contact your bank immediately. If you sent the money via a gift card or Venmo, it will be much harder to recoup any of the funds.
6. Watch your bank accounts. Keep tabs on your bank accounts for any suspicious activity or unauthorized transactions. Most banks will let you place fraud alerts on your accounts. If something comes up, tell your bank’s fraud department immediately.
7. Review your credit. Make sure that the scammer does not open fraudulent accounts in your name. Request free copies of your credit reports from each credit bureau via annualcreditreport.com. Consider a credit freeze so that no one – not even you – will be able to open an account until you unfreeze them.
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Find the cash you need
There are plenty of legitimate lenders who will not scam you. All you have to do is find them.
You are much less likely to encounter fraud if you contact them yourself instead of waiting for them to contact you. That is easy to do with so many legit online money lending businesses. To find online loans that are not scams, look for registered and licensed lenders in your state.
Next, do a quick search to check their online presence and see what others are saying about them. Read customer reviews and consider ratings. Search for their name alongside terms like ‘fraud,’ ‘scam,’ or ‘rip-off’ and see what comes up.
Once you’ve verified that the lenders are legit, prequalify with at least three and compare offers. Prequalifying does not guarantee approval, but it does tell you if you meet the basic criteria. Take a look at the interest, fees, loan amounts, and repayment terms to choose the best one for you. Lastly, you’ll have to formally apply.
Frequently asked questions
1. How do I tell if my lender is legitimate?
Check that your lender has a secure, encrypted website, is licensed in your state, and has a physical address. Call the number on the site to ensure someone answers the phone. You can verify their legitimacy through online reviews, the Better Business Bureau, or your state’s regulatory agency.
2. Can a scammer take out a loan in your name?
Scammers can apply for loans in your name if they have personal information including your full name, date of birth, and social security number. To prevent this, monitor your credit reports regularly, enable fraud alerts, and report suspicious activity immediately to your financial institutions and law enforcement agencies.
3. Are online loans safe?
Yes, they can be safe if you choose reputable lenders with secure websites. Online loans that are not scams will have clear terms, no upfront fees, and the lender will have a verified license. Avoid offers from unregulated businesses or sites with poor encryption and questionable reviews. These can be signs of online loan scams.
4. What can I do if a scammer has my personal data?
Immediately alert your bank and credit card issuers. Monitor your statements for suspicious activity and lock your debit and credit cards. You can also contact the major credit bureaus to freeze your accounts. File a report with the Federal Trade Commission (FTC), Consumer Financial Protection Bureau, and local law enforcement agencies to help prevent further scams.
5. What are some red flags of phishing?
Phishing attempts often include urgent or threatening messages, generic greetings, and requests for sensitive information like passwords or financial details. The emails tend to have spelling or grammatical errors and appear unprofessional. The sender’s email address may be similar to that of a legitimate company but may vary slightly. Hover over links to see the actual URL before clicking. Only click on a link or reply if you know who the sender is. If you receive a phone call, hang up and call back to make sure the number is legitimate.
6. What are the red flags of a scammer?
Scammers are known for high-pressure tactics to get you to act without thinking. Many offer unrealistic promises like guaranteed returns on investments or large prizes you didn’t enter for. Be careful of any unexpected phone calls that are trying to get you to take out a loan or sign up for a credit card.
7. What is considered a red flag in a loan application?
Red flags on loan applications include requests for upfront payment, no credit check, and an unsecured website. Be wary if your receive an unsolicited offers or if you’re asked for payment via gift cards or cryptocurrency.
Bottom line
It is entirely possible to get the cash you need without falling victim to personal loan scams. Keep your eyes open and verify all the lender’s details. Watch for warning signs, such as unsolicited offers or guarantees of approval. If one little thing appears off, walk away. It’s not worth being tricked out of your money or dealing with identity theft.
Plenty of reputable lenders offer personal loans and will be happy to work with you. It’s true that if you have bad credit, finding these lenders will be more challenging, but not impossible. There are legitimate online lenders that specialize in loans for less-than-perfect credit. Find one that operates in your state and prequalify today.
