With the rise of online lending, many scammers have also arisen. That is why you should always be aware of personal loan scams. Scammers pretend to be legitimate lenders and trick people into giving them money or personal information.
They often use a variety of tactics, including unsolicited calls or emails, promises of guaranteed approval or no credit check, or requests for upfront payments or fees.
Such scams are really dangerous because they can cost you all your money. Even more, they can lead to identity theft or even cause severe fraud not only for your credit info but also life.
To protect yourself from advance fee loan scams, make sure you do your research and only conduct business with trustworthy lenders.
What To Avoid In Personal Loan Companies
When searching for personal loan companies, you should know some red flags to watch out for. First, avoid loan brokers who require fees or payments in advance, as this is often a sign of a personal loan scam. Additionally, be wary that companies promise guaranteed approval, as this is rarely true.
Another thing to look out for is high-interest rates and hidden fees. Scammers can add them up over time and cost you more money in the long run. In addition, read the fine print and ask questions about any charges or terms you don’t understand.
Finally, only work with reputable lenders with a track record of providing fair and transparent loans. By researching and avoiding these pitfalls, you can find a loan that meets your needs without falling prey to scams or predatory lending practices.
It’s essential to be wary of lenders who promise guaranteed approval for personal loans, as this is impossible. No lender can ensure that every applicant will be approved. The approval decision highly depends on factors such as credit report, income, and debt-to-income ratio, which are always considered during approval.
Scammers often use the promise of guaranteed approval to lure in unsuspecting borrowers, so it’s important to recognize this red flag when searching for a loan. Be especially cautious of lenders who don’t require any credit reports, don’t do a credit check, or ask for upfront fees, as these are often signs of a personal loan scam.
It’s essential that any personal loan companies you work with are registered and licensed to operate in your state or country. This registration ensures that the lender follows all relevant laws and regulations related to lending, protecting you from potential scams or predatory lending practices.
If a lender is not registered, it’s a major red flag and a sign that they may not operate legally. Such conditions can cause you a lot of risks of financial loss and other fraudulent businesses.
Requirement Of Fees Upfront
It’s essential to be cautious of any personal loan lender who requires fees to be paid upfront. Legitimate lenders typically only require borrowers to pay fees after the loan is approved and funds are disbursed. Requiring fees upfront is a red flag that the lender may be a scam artist trying to take advantage of you.
Scammers may ask you to pay upfront under the guise of a loan application fee, processing fee, or other cost. They may even ask for payment through a gift card or wire transfer. Such tactics will make it impossible to bring your money back when you realize you’ve been scammed.
No Physical Address
Working with personal loan companies with a physical address is essential, as this is a sign that the lender is legitimate and accountable. A real-life address lets you contact real lenders with any questions or concerns. Thus, the physical address is essential if something goes wrong with your loan.
If a company online you found doesn’t have an address, it’s another red flag to be aware of. It is a sign that they may not be a legitimate company and simply use fake websites. It can put you at risk of financial loss or identity theft, as you may provide personal information to an evil entity.
Pressure To Act Immediately
If a lender pressures you to get a loan, consider it a red flag. Legitimate lenders want you to make informed financial decisions. Therefore, they will give you the time to review the loan terms and ask questions.
Loan scammers use high pressure sales tactics to push you into making a hasty decision, often making false claims about the urgency of the loan or threatening legal consequences if you don’t act right now.
To protect yourself, take the time to carefully review any loan offers, if needed, apply to the business bureau, and don’t feel pressured to decide immediately.
Self-Destructive Strategy Of The Company
If a personal loan company offers deals that seem too good, it is definitely a red flag. It is because the company may be engaging in self-destructive practices that could put your loan and finances at risk.
Trustworthy lenders need to make a profit to stay in business and offer loans to customers. Overly generous terms may indicate that the lending institution is not financially stable.
To protect yourself, be wary of lenders offering loans with highly low-interest rates or other unrealistic terms.
Types Of Loans to Avoid
In addition to scam companies, there are scam loans to be aware of. To avoid these types of loans, thoroughly research the lender and read the terms before signing anything. Look below for a loan scammer list that offers unreasonable interest rates and fees, and avoid loans with terms that seem too good to be true.
Payday Loans and Check Advance Loans
Check advance loans are scam loans typically offered by high-interest lenders. They often come with concise repayment terms and high-interest rates and fees, which can trap borrowers in a cycle of debt.
Research and choose a reputable lender with reasonable rates and fees to avoid these loans. If you need a short-term loan, you better think about the alternatives to loans. These include personal loans from legitimate financial institutions or credit unions or borrowing from friends or family.
Pawn Shop Loan
A pawn shop is a loan where a borrower offers an item of value as collateral in exchange for cash. While some pawn shops may offer reasonable terms and interest rates, scam lenders also take advantage of vulnerable borrowers by charging exorbitant fees and offering unfair terms.
To avoid falling victim to a scam pawn shop loan:
- Research the lender thoroughly and read the terms carefully before signing anything.
- Look for pawn shops with positive reviews and reasonable rates and fees.
- Look for other options for borrowing money (personal loan or credit card).
A 401(k) is a loan amount that is taken from a retirement account. While this type can be a legitimate option for some borrowers, scam lenders also take advantage of borrowers by charging high fees and offering unfavorable terms.
Following the next rules to avoid falling victim to a scam 401(k) loan.
- Always read and fully understand the terms and potential consequences of borrowing against your retirement savings.
- Consider different alternative options for borrowing money (personal loans or credit cards) before applying for a 401(k) loan.
- Be wary of most lenders who charge excessive fees or offer unrealistic terms, and always do your research before borrowing from any lender.
A title is a loan where a borrower uses their vehicle as collateral in exchange for cash. Scam lenders in this industry charge incredibly high-interest rates and fees, making it difficult for borrowers to repay the loan. To avoid these scam loans, research the lender before accepting any loan offer, and look for reputable lenders with reasonable rates and fees.
Buy-Here-Pay-Here Auto Loans
Buy-here-pay-here auto loans are car loans offered by the dealership, often to people with bad credit or no credit history. Some scam lenders in this industry charge high-interest rates and fees for people with poor credit.
It sometimes may cause difficulties for borrowers to pay off the loan. To avoid these scam loans, research the dealership and lender before accepting any loan offer, and look for reputable lenders with reasonable interest rates and fees.
What To Do If I’ve Been Scammed
Stop communicating with the lender immediately if you suspect you have been scammed. Also, don’t provide any more personal or financial information. Look for any signs of fraudulent activity.
It may include unauthorized charges on your bank account numbers or prepaid debit card accounts. You should also report them to your bank or credit card company so that the bank would know the scammers and could prevent other charges.
In addition, file a police report to the local police, federal trade commission, or your state attorney general’s office about the fraud alert. Act quickly to protect yourself and prevent further financial harm is essential.
Additional Warning Signs Of Personal Loan Scams
Another warning sign of personal loan scams is the lender’s inability to perform a credit check. They also may ask for sensitive information (social security number or bank account number) before providing you with loan details.
To avoid an advance fee loan scam, always research the lender and check their credentials, read the loan terms and conditions carefully, and avoid lenders that charge advance fees or high-interest rates.
Remember that legitimate lenders will never guarantee loan approval or ask for sensitive information before providing you with loan details.
How To Find Legitimate Loan Company And Personal Loan Offer
There are a few key factors to consider when looking for legitimate loan companies and personal loan offers.
- Check the lender’s credentials. Ensure the lender is licensed and registered in your state and check if they are registered with relevant regulatory bodies.
- Read the loan terms and conditions. Carefully review the loan terms and conditions. It also includes the interest rate, repayment terms, and any associated loan fees. It is also good to know if they use the checking account process to verify the customer. If not, you better be careful.
- Look for reviews and ratings. Check the lender’s reputation by reading reviews from other customers and checking their ratings with major credit bureaus (f.e, MSN Money).
- Avoid an upfront fee. The legitimate lender never charges fees in advance before approving a loan.
- Check the interest rates. Compare rates from different lenders to be sure you’re getting a fair deal.
- Ask questions. Do not wait till you get scammed if you have any doubts about a loan. Always ask the lender for clarification before proceeding.
Sources Used in Research for the Article:
- Predatory Loans and Loan Scams, Department of Financial Services,
- What are some common types of scams, Consumer Financial Protection Bureau, https://www.consumerfinance.gov/ask-cfpb/what-are-some-common-types-of-scams-en-2092/
- How can I protect myself and others I care about from fraud and scams, Consumer Financial Protection Bureau, https://www.consumerfinance.gov/ask-cfpb/how-can-i-protect-myself-and-others-i-care-about-from-fraud-and-scams-en-1935/