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Personal loan scams are fraudulent loan offers that aim to collect sensitive personal information and fees from victims—with no intention of ever extending a loan. Luckily, you can avoid these scams by keeping an eye out for red flags like upfront fees and vague or nonexistent lending requirements. When shopping for a personal loan, you can also avoid scams by reading online reviews and getting lender recommendations from friends and family.
What Are Personal Loan Scams?
A personal loan scam is a way for fraudsters to obtain your Social Security number or collect fees without lending you any actual money. Some of the most common personal loan scams involve fraudulent lenders acquiring your information or funds by promising a loan without a credit check. Others make unsolicited loan offers and then collect upfront fees or collateral before disappearing.
Luckily, because many loan scams are similar, there are certain characteristics you can look for—and avoid—when shopping for a legitimate personal loan.
Red Flags: How to Spot a Personal Loan Scam
Personal loan scams are pretty common, but, luckily, there are ways to spot them before you get caught up in one. Here are some warnings to look for in identifying a loan scammer.
The Lender Contacts You Directly
Generally speaking, you won’t get unsolicited calls from lenders unless you recently applied for a loanand are receiving prescreened calls based on your credit history. On the other hand, personal loan scammers often contact targets via phone, email or in person and request their personal information as a way to gain access to their bank accounts.
To be clear, while you may receive phone calls or mailers from recognized lenders, direct, unsolicited loan offers are likely a scam—especially if you haven’t already applied for a loan. If you have any concerns about the legitimacy of a loan offer, look up the lender’s registration on your state attorney general’s websiteto evaluate whether the lender is above board.
You may also be able to distinguish a scammer from a legitimate lender based on their pitch. If the lender guarantees approval, is vague about fees and lending requirements or indicates that your credit score is irrelevant—it’s likely a personal loan scam.
You Feel Pressured Into a Loan
When shopping for a personal loan, you should also keep an eye out for offers set to expire within a short period of time or loans with otherwise urgent application requirements. Reputable lenders generally have consistent loan offerings that are based on factors like creditworthiness and current personal loan rates. And, while some lenders can offer limited time fee waivers, these temporary deals often are limited to fees and won’t affect your interest rate or other loan terms.
Therefore, if a lender tries to pressure you into a loan by offering a low interest rate—and then claiming it’s only available for a short time—it’s likely a scam.
The Lender Guarantees Loan Approval
Another favorite tactic of fraudulent lenders is guaranteeing loan approval as a way to get would-be borrowers on the hook. A lender’s willingness to extend a loan is always based on a number of factors including a borrower’s credit history, employment and income and debt-to-income ratio. So, if a lender makes blanket promises that don’t include borrower qualifications—like “guaranteed approval”—it’s likely a scam.
The Loan Doesn’t Require a Credit Check
Similarly, you should also be wary of lenders that claim they don’t require a credit check. Every personal loan a bank extends exposes it to a certain amount of risk. To ensure applicants have a history of making on-time payments, reputable lenders run credit checks on potential borrowers, even if the loan is expressly offered to borrowers with bad credit.
For that reason, if a lender does not run a credit check as part of your loan application process, it’s probably a sign of a personal loans scam. The fraudulent lender has no intention of dispersing funds—so there’s no risk of missed or late repayment.
The Lender Won’t Disclose its Fees
Personal loan scammers often are intentionally vague about fees and will neither disclose them upfront nor provide them upon request. Often, a fraudulent lender is purposefully vague about fees and then springs them on the borrower after loan approval in an effort to pressure him into signing.
In contrast, legitimate lenders typically publish applicable fees on their websites and are transparent about loan costs during the application process. What’s more, traditional loan fees are paid at the time of the closing—not after approval. If your lender fails to disclose all of the loan application and origination fees upfront, you may be involved in a personal loan scam.
You’re Required to Pay Fees Upfront
If a lender asks for payment of fees before the application process or immediately after approval, you are likely the target of a scam. Not only are loan origination fees typically paid at closing, these fees are generally paid out of the loan proceeds—meaning the amount of money you receive will be reduced by the amount of fees you agreed to pay.
The Lender Asks for a Prepaid Credit Card as Payment
If a lender asks for loan repayment in the form of gift cards or prepaid credit cards, you are likely the target of a scam. Here’s how legitimate personal loans work: Banks and other lenders typically accept loan payments in the form of online payments, checks and other traditional forms of payment and would never request or accept a prepaid credit card as payment. Requests for gift cards, payments over the phone and checks made out to individuals should always be treated as a red flag.
The Lender Isn’t Registered with the State
Lenders are required by the Federal Trade Commission (FTC) to register with the attorney general in every state the lender does business. Registration generally involves a vetting process, including a background check that personal loan scammers will likely be unwilling to submit to—or pass.
Before you give a lender your Social Security number or other personal information, visit your state’s relevant website to confirm the institution is registered. If you’re not sure who to contact, check with the National Association of Attorneys General. By doing so, you can identify a personal loans scam early on and avoid handing over any valuable information.
The Lender Doesn’t Have a Secure Website
Because banks handle large volumes of personal information like birthdays, Social Security numbers and login credentials, their websites must be extremely secure. This requires having a Secure Sockets Layer (SSL) certificate, which facilitates an encrypted connection between your computer and the lender’s website.
When shopping for a personal loan, confirm the lender’s website is secure by checking for the “https” prefix on the web address instead of “http.” If the website is not secure, it may be a scam, so don’t submit any of your personal information before researching the lender’s legitimacy.
You Can’t Find a Physical Address
Reputable lenders have physical addresses where they can conduct business and receive mail. Even exclusively online lenders typically have a brick-and-mortar headquarters. A physical address not only enables customers to visit the lender in person, it also creates accountability so the business can be contacted in the case of legal action or other enforcement measures.
For that reason, the lack of a physical address should be a red flag when you’re shopping for personal loans. In fact, even a lender that only provides a post office box should be more heavily scrutinized than those that can offer proof of their business location.
How To Combat a Loan Scammer
If you suspect you’ve been exposed to a personal loan scam, it’s important to report it to authorities so others don’t fall victim to the same threat. Combat a loan scammer by following these steps:
- Compile documentation of the scam.As soon as you suspect a loan scam, assemble copies of emails, loan documents and voicemail recordings from the suspected scammers to pass along to authorities.
- File complaints with regulatory agencies.In addition to collecting documentation of your experience, report the scam to your state’s consumer protection office and attorney general. You also should contact the FTC and the Federal Bureau of Investigation (FBI) to report your experience with the scam.
- Contact local law enforcement.In addition to contacting the FTC, report the scam to your local police department. They will be able to issue an official police report and take any steps to limit the scammer’s continued activity in your area.
- Tell your friends and family.When shopping for personal loans, many people rely on referrals from friends and family to choose a reputable lender. If you encounter a personal loans scam, tell your friends and family about it so they don’t fall prey to the same threat.
- Protect yourself against future scams.Finally, you should always take steps to protect yourself against future scams. Start by keeping an eye out for common red flags and learning what to look for in a legitimate personal loan.
How to Search for a Legitimate Personal Loan
If you need a personal loan and don’t already have a relationship with a bank, research several lenders to find one that best suits your needs. Take these preliminary steps to ensure you are applying for a legitimate personal loan:
- Read online reviews
- Get recommendations from friends and family
- Review the Better Business Bureau’s rating
- Check for up-to-date state registration
- Evaluate the lender’s contact information and website
