Identifying Personal Loan Scams
A personal loan scam is a fraudulent scheme where scammers pose as legitimate lenders, offering loans under false pretenses. Personal loan scammers may try to deceive you by using a fake company name, logo or false caller ID number to impersonate a legitimate lender and gain your trust.
The goal of their scam is to collect your personal and financial information, including your Social Security number or bank account so that they can commit fraud. As a victim of a personal loan scam, you can suffer unfortunate consequences, including significant financial losses and identity theft.
These may come in the form of unsolicited phone calls, text messages or letters encouraging you to sign up for a personal loan. These scammers may promise you loans offered for only a limited time to pressure you to act quickly.
Other personal loan scams to watch out for involve legitimate – albeit predatory – lenders. They may also trick you into wasting your money through loans that have high interest rates, hidden fees and other charges.
A common tactic used by this type of personal loan scammer is to promise guaranteed approval of your personal loan without any review of your credit history or creditworthiness. Scammers may also ask for upfront fees or charges before you’ve had the chance to look over any paperwork or receive any services.
How To Combat a Personal Loan Scammer
If you recognize the warning signs, you can help combat personal loan scammers. By knowing how to protect yourself and doing your due diligence when considering a personal loan, you can avoid falling prey to a scam.
Recognize Warning Signs
Personal loan scammers will often try several different ways to gain access to your personal and financial information.
They may try to convey a sense of urgency to get you to act fast before you can look too deeply into their company or their offer. They may add to that pressure to act quickly by reassuring you that you’ve been pre-approved for the personal loan and they don’t need to run a credit check. Or they may hint that something bad may happen if you don’t take advantage of their loan offer soon.
Scammers may also promise you debt consolidation or debt forgiveness by claiming their loans will help you pay off your existing debt. They may pretend to be affiliated with legitimate institutions to appear trustworthy. These scammers will collect your money, but little to none of it will go toward paying off your debt.
Trust your instincts — if a personal loan offer sounds too good to be true, it likely is.
Avoid Upfront Fees
Personal loan scammers may assure you that they can get you the loan you want, no matter your creditworthiness, but you’ll have to first pay a fee for either the loan application, loan processing or as collateral or insurance on the loan. With advance-fee loans, scammers may request payment through untraceable methods, such as cash, prepaid debit cards, cryptocurrency or through access to your bank account.
Never pay fees in advance without ever seeing any paperwork. After you’ve paid these upfront fees, your money — and the scammer — will disappear.
A legitimate personal loan company may charge an application fee or a loan origination fee to process, submit, underwrite and review your loan. However, the lender will fully disclose these fees as part of a formal loan application and will add them to the cost of your personal loan. Legitimate lenders will verify your personal information and assess your credit history to determine your eligibility; they will never tell you that paying a fee will guarantee you a loan.
Verify Lender Credentials
Before applying for a personal loan, research the lender’s legitimacy. Make sure the lender is a licensed and regulated financial organization or financial institution authorized to do business.
Check to see if the personal loan lender is registered in your state, which is generally required to do business in your state. You can contact your state attorney general or your state’s bank regulator to confirm the lender is registered.
You can also research the personal loan lender online and see if there are any bad reviews, complaints or scams reported on the lender. You can also search for the lender’s phone number online to see if there are any reported scam calls from that number. The Better Business Bureau’s (BBB) website is another place to find any negative feedback about a lender by doing a simple search of the lender’s name.
If a potential personal loan lender contacts you and you’re not sure whether the company is legitimate, you can reach out to the lender directly through its website or by calling the customer service number listed online to verify its credentials.
Report Suspicious Activity
It’s essential to report any suspicious personal loan lenders to the relevant authorities. When you report scammers, you can help law enforcement stop their activity, alert others to the scam and help protect others in your community from being scammed. It’s easy to report suspicious activities and potential scams; you can alert the Federal Trade Commission (FTC) to the fraud, report scams to the Better Business Bureau (BBB) and submit complaints to the Consumer Financial Protection Bureau (CFPB).
Red Flags of Personal Loan Lenders
There are several red flags to alert you of untrustworthy personal loan lenders. One key indicator of a personal loan scammer is if there is no contact information or physical address. If you’ve never heard of a lender, see if it has a physical branch or location or an online presence.
Legitimate lenders will always have an online presence that also lists a physical address to meet regulatory oversight. If you find no trace of the lender or no way to contact the company, it’s best to avoid the lender.
Another red flag is if a personal loan lender offers unrealistic loan terms or guarantees. The lender may pressure you to act fast before the offer expires and may boast there is no approval process. Or, the lender may offer you a low interest rate despite bad credit.
Lenders may claim, “No Credit or Bad Credit? No Problem!” or “Act Now! Guaranteed Cash Today!” Most legitimate lenders have a list of requirements you’ll have to meet in order to qualify for a personal loan, including a minimum credit score and proof of income. Legitimate lenders will never force you to make quick financial decisions under pressure or stress.
Searching for Reputable Personal Loan Lenders
When you’re looking to take out a personal loan, do your research to find a reputable lender. Check a lender’s online presence by verifying the lender’s website and confirming its website is secure to protect your personal information. Also, make sure that the lender has a physical address and contact information.
If you know the company’s address, including the state, you can check the Secretary of State’s website to see if the company is on the list of registered businesses for that state. You can ensure the lender is registered to do business within your state, and you’ll be able to see additional details about its business, including its current status and formation date.
You can also read customer reviews and ratings on personal loan lenders. Search for the lender’s name online and read the reviews. If there are numerous complaints or negative online reviews on the lender’s business practices, it may be wise to go with a different lender. The Better Business Bureau (BBB) is another valuable resource to see if there are consumer complaints about a personal loan lender or any alerts about government action taken against the lender.
Word of mouth can also be a great indicator of reputation — ask trusted sources like friends and family for recommendations on personal loan lenders that they know and trust or have had good experiences with. You can also contact non-profit credit counseling agencies for their advice and help manage your debt and improve your financial situation.
How Do You Overcome a Loan Scam?
If you know or suspect you’ve been the victim of a personal loan scam, it’s crucial to act right away.
- Contact any companies involved: If you’ve made a payment to the personal loan scammer from your bank account or credit card, contact the institution immediately to cancel the transaction and secure your account from any further fraud.
- File a police report: Contact your local police department to file a police report and request a copy as proof of the incident.
- Monitor your credit: If your personal or financial information is compromised, it’s critical to request a copy of your credit report from the three major credit bureaus and review them for any fraudulent activity. Place a fraud alert on your credit report to inform creditors that you may be a victim of fraud. They will have to contact you to verify your identity and any inquiry activity before issuing any new credit.
- File a report with the Federal Trade Commission (FTC): The FTC keeps track of and investigates scams. You can get personalized tips on how to respond to fraud after you submit your report.
The Bottom Line
Personal loan scams prey on those who need financial help or debt relief, and it’s essential to recognize the signs of scammers and know how to protect yourself to avoid being scammed.
If you’re considering a personal loan, do your research and make sure the lender you’re dealing with is legitimate and authorized to do business. Don’t be pressured to pay upfront fees or accept offers that come with false guarantees from unrecognized lenders.
By remaining proactive against scammers and carefully reviewing and verifying any potential personal loan lenders, you can avoid becoming a victim of fraud and personal loan scams.
Frequently Asked Questions About Avoiding a Personal Loan Scam
A personal loan scammer can access your bank account through the personal and financial information you provide on your loan application. The lender may guarantee your loan is approved if you pay an upfront fee. The lender may instruct you to pay these charges by providing bank account information such as your bank account number and routing number. The scammer can then initiate unauthorized transactions with your bank information. The lender may also ask for your username and password to access your bank account online.
A legitimate lender will never ask for your username and password to log on to your bank account for you. If you’ve given this information out, please contact your bank immediately.
When a scammer gains access to your personal and financial information, such as your legal name, Social Security number, bank account details and other identifying information, they can apply for new loans in your name.
To find out if any loans have been taken out in your name, request your credit report from the nationwide credit bureaus and carefully review it — you can quickly see if any loans have been taken out in your name that you didn’t initiate or authorize. Report any unrecognized loans or loan fraud to the credit bureaus as soon as possible.
When posing as a lender, scammers can get your sensitive personal and financial information from you, such as your legal name, your Social Security number, bank account details and other identifying information. The scammer can then use that information to take out loans or lines of credit in your name.
Editor’s Note: Before making significant financial decisions, consider reviewing your options with someoneyou trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
If you have feedback or questions about this article, please email the MarketWatch Guides team ateditors@marketwatchguides.com.
David GregoryEditor
David Gregory is a sharp-eyed content editor with more than a decade of experience in the financial services industry. Before that, he worked as a child and family therapist until his love of adventure caused him to quit his job, give away everything he owned and head off to Asia. David spent years working and traveling through numerous countries before returning home with his wife and two kids in tow. His love of reading led him to seek out training at UC San Diego to become an editor, and he has been working as an editor ever since. When he’s not working, he’s either reading a book, riding his bicycle or playing a board game with his kids (and sometimes with his wife).
