Scams are becoming increasingly sophisticated and often target individuals who are most vulnerable and in need of financial assistance. Becoming a victim of such a scam can lead to devastating financial loss and emotional stress. A recent report estimated that consumers lost more than $10 billion to fraud in 2023 alone.
Investment fraud is the most common, but it also includes personal loan scams, in which scammers often lure struggling people into giving up personal information or paying an upfront fee to get a quick loan.
Recognizing the signs of fraud can help you make safer financial decisions and protect your finances and personal information.
How to Recognize the Signs of Loan Fraud
With personal loan scams on the rise, it’s more important than ever to exercise due caution and be on the lookout for potential signs of fraud.
Celia Winslow, vice president of the American Financial Services Association (AFSA), offers some simple advice on how to avoid being scammed: “If it sounds too good to be true, it probably is.”
As with many online fraud schemes, offers that seem too good to be true usually are, especially “now or never” offers. Consumers should always be on the lookout for potential phishing and financial fraud schemes that attempt to get them to share personal financial information, such as credit card or bank account information.
— Celia Winslow, Executive Vice President, AFSA
Consider the following tips to help you recognize the warning signs of loan fraud:
1. Unrealistic guarantees of approval
One of the most obvious signs of a loan scam is the promise of guaranteed approval. Legitimate lenders must thoroughly verify your financial details, including your credit history, income, and other relevant information, before approving you. This process allows the lender to assess your ability to repay the loan.
If a lender guarantees approval without evaluating your financial situation, that’s a definite red flag.
Scammers often offer guaranteed approval loans to consumers with bad credit histories or financial difficulties, hoping they’ll be fooled by a story that sounds too good to be true. If you were denied a loan because of your financial situation, consider improving your credit. If your score is low because of an error, we also recommend working with a top-rated credit repair company.
If you are struggling to get financing because of your credit history, consider personal loans for bad credit as you may have a better chance of qualifying for these loans.
2. Upfront and hidden costs
Unexpected upfront fees are a warning sign of a personal loan scam. Reputable lenders typically won’t ask for payment before disbursing the loan funds.
Instead, lenders will deduct the fee from the loan amount or include it in the repayment terms. Any fees charged should be clearly stated.
Scammers will try to justify the upfront fees by calling them “processing” or “insurance” fees, but they disappear once paid. If you’ve been “approved” for a loan that requires you to pay the lender immediately, it’s probably time to cut ties with the loan.
3. Pressure to act immediately
Scammers often use high pressure tactics to get people to make a hasty decision, often in the form of a limited time offer or a proposal that comes with consequences if not accepted immediately.
Scammers may also threaten or pressure people with legal action or other negative consequences if they don’t act immediately. Legitimate lenders value informed decisions, and they are usually willing to give people the time and information they need to carefully consider their options.
If you feel pressured to act quickly without sufficient information or are uneasy about the lender’s sales tactics, consider other options.
4. Unfair loan offers
If you receive an unsolicited loan offer, whether by email, text message, or social media, it’s likely a scam. Be especially wary of loan offers made over the phone. Telemarketers who offer loans or credit over the phone and ask for upfront payment are illegal.
Legitimate lenders rarely take an unsolicited approach, instead typically employing traditional marketing techniques to get in touch with consumers interested in a loan. Social media, in particular, has become a hotspot for cybercriminals looking to exploit vulnerable individuals.
If you’re considering a personal loan, take the time to thoroughly research your options and ensure you’re dealing with a legitimate organization by using a reputable loan aggregator platform or contacting the lender directly through the lender’s verified contact information.
5. Unclear or non-existent contact information
Legitimate lenders will use transparent communication channels and provide contact information so borrowers can contact them with any questions or concerns.
Scammers often don’t include contact information, making it harder to get your money back if things go sour. Always do plenty of research and verify contact information for potential lenders before applying for a loan.
6. No address
The lack of a physical address can be a major red flag when evaluating a potential lender. Legitimate lenders, even if they operate primarily online, will typically provide a verifiable mailing address as part of their contact information.
Scammers often avoid listing their actual address to maintain anonymity and avoid liability. If you can’t verify the lender’s location through basic online research, proceed with caution.
Expert Insights
Many online lenders don’t have physical storefronts you can visit, but they should have a mailing address. If you borrow online, Winslow recommends taking extra precautions, such as avoiding clicking on unexpected links or attachments and checking the lender’s reputation with the Better Business Bureau (BBB) or Federal Trade Commission (FTC).
7. No registration or license
To legally offer loans, lenders must be registered and licensed in your state. If a lender can’t or won’t verify your registration or license status, they may be a scammer.
The FTC recommends contacting your state’s attorney general or banking and financial services regulator to find out if the lender is registered in your state.
8. Unsecure Websites and Requests for Personal Information
You should always check that websites that request your personal or financial information are secure and properly encrypted – look for “https” (not just “http”) in the website address and a padlock icon in your browser bar to indicate a secure connection.
If you are unsure about the website’s security protocols, it’s best not to fill out an application.
Steps to take if you suspect loan fraud
If you suspect loan fraud, take the following steps as soon as possible to protect yourself from further victimization and mitigate potential losses:
- Stop communication: First and foremost, it’s wise to stop communicating with or making payments to the scammers. If you’ve already given them information that could be used for payment or identity theft, take steps to protect your information.
- Collect evidence: Gather detailed information and evidence of the scam. The more details you can remember, the easier it will be to report the scam and take the next steps to protect yourself.
- Please report the company to the appropriate authorities: These include: FTC, the Consumer Financial Protection Bureau (CFPB) or local law enforcement agencies.
- Check your compensation: Check your homeowners or renters insurance policy to see if it includes fraud and identity theft coverage. This typically covers the cost of resolving identity theft issues, but it may also provide valuable assistance if you are the target of a scam.
Regularly monitor your bank accounts for suspicious activity or fraudulent transactions. Consider placing a fraud alert or credit freeze on your accounts to prevent further losses. There are several ways to protect yourself from phishing scams for loans and other fraudulent offers. Types of online banking fraud.
How to Find a Trusted Lender
Being proactive is the best way to avoid becoming a victim of loan fraud.
You are much less likely to get scammed if you apply for and obtain a personal loan yourself from a reputable lender. However, it is still important to be wary of advertisements by unreliable lenders and scammers. Before submitting your personal information to a potential lender, check for red flags, verify the lender’s information, and make sure they comply with regulations and licenses.
A reputable lender will take the time to carefully explain the loan details to you, including the fine print. They won’t pressure you into a decision or hide their address or contact details.
“When in doubt, turn to the wide range of lenders that operate brick-and-mortar branches and offices, where customer service staff can sit down and guide consumers through the loan process and answer any questions,” Winslow said.
Conclusion
Loan scams are becoming more sophisticated, so it’s important to watch for the warning signs. Stay informed about the latest tactics scammers use, and don’t ignore the red flags, no matter how attractive the offer may be. Remember, offers that promise guaranteed approval, come unsolicited, or ask for upfront fees are often scams.
Protect yourself by looking for lenders that value transparency and provide full disclosure, and if you suspect a scam, report it immediately to the appropriate authorities to prevent others from becoming victims.
