13 Signs of a Personal Loan Scam

The Federal Trade Commission reports that consumers lose around $900 million to personal loan scams each year. While more people are learning the warning signs, scammers are adjusting their tactics every day to make them look more credible to unsuspecting consumers.

These scammers tend to prey on people in difficult financial situations, particularly those who have been previously denied loans. If you are in this kind of situation, you are statistically more likely to be targeted for such scams. Accordingly, if you can spot the warning signs of these loan scams, then you can take steps to avoid them. Follow this list to stay informed and prepared.

Signs of a Personal Loan Scam

There are multiple types of personal loan frauds that vary based on the scammer and their efforts. Many scammers will try to look as legitimate as possible to throw consumers off.

The following are some tell-tale warning signs that your lender:

1. The lender ignores your payment history and doesn’t check your credit. Even lenders that specialize in helping people with poor credit will still run a credit check to see what loan terms they can offer you.

2. Your lender offers automatic approval. If a lender guarantees automatic approval, then the offer may be too good to be true. This is a tactic to prey on people with bad credit or poor financial history who have had difficulty securing a loan elsewhere.

3. The lender isn’t registered in your state. Check for a list of states where the lender is registered to operate. Even online-only and international lenders are required to register with each U.S. state to loan money to customers in that state. You can also check your state’s Attorney General’s office to see if a lender is registered.

4. Loan fees are not taken from the balance. Most reputable lenders will deduct their application and credit check fees from the amount you borrow. Disreputable lenders will ask for money upfront outside of the loan. Do not pay a lender before they grant you access to your loan, because they may take your fees without actually lending you the money.

5. The lender requires you to pay fees with a gift card. Any unusual forms of payment signal major warning signs that a loan is a scam. You should not have to mail gift cards, make payments to individual accounts, or wire money for your loan to get approved.

6. The website isn’t secure. If the website doesn’t have a padlock icon before the address or an “https” address, then the website isn’t secure. Any reputable lender’s website will include encryption, and the lack of security should signal that this lender is probably to be avoided, if not an outright scam.

7. Your lender does not include (or have) a physical location. You should be able to look up the address of a reputable lender. Search the address in Google Maps to see if it shows an office building or an empty lot. If there is no address listed, or if there is just a P.O. box, then it likely is a scam.

8. The lender isn’t from a lending company. Some companies will try to offer loans as a way to steal personal information. The goal is to profit from you but also to take your social security number, credit card number, and bank account information.

9. There’s pressure to act fast. Reputable lenders know that taking out a loan is a big decision that requires consideration. Meanwhile, scammers will try to put pressure on you with expiration warnings and fast deadlines. Ignore these deadlines and take your time to decide whether or not a loan is right for you.

10. Your offer does not include the full terms of the loan. The Truth in Lending Act states that all lenders must provide full loan terms to customers. If you are unable to see the full terms and amount you will owe before you agree to the loan, the lender is in violation of the act.

11. The lender’s name is similar to reputable brands. Some scammers will try to look legitimate by creating copycat brands with similar names, websites, and logos. Even if a business looks reputable, you can check its history through the Better Business Bureau.

12. There are issues with spelling and grammar. Any loan terms with misspelled words or incorrect grammar may signal that the lender is not reputable, or at least not professional.

13. Customer service is hard or impossible to reach. There should be a clear helpline on the website and other service options like a chat line and contact form.

Many scammers will try to make their companies seem legitimate, but there are many details and actions that give their true intentions away.

What to Do If You Have Been Scammed

If you believe that you were scammed, report the lender to the FTC through its Internet Crime Complaint Center. Even if you are embarrassed that you fell for a scam, you can protect others from falling victim by filing a report.

If you are scammed, you may also want to take extra steps to protect your finances. Consider contacting your bank and credit bureau so lenders can take extra steps to verify your approval before approving purchases or accessing your credit. You may also want to monitor your finances closely to make note of any suspicious activity that your lenders didn’t catch.

Know the Warning Signs

The more the FTC and other organizations crack down on scammers, the more creative they will get. However, knowing the warning signs listed above and taking steps to verify lenders can help you identify the latest scams and criminal activity.

To learn more about the risks to your finances and credit, visit the identity theft section of our blog. Our resource section also covers steps to cancel your credit card if needed because of scammers. 

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