Many people think they’re immune to scams or scam artists, but they’re a lot trickier to identify than you might think. The criminals behind personal loan scams can be surprisingly persuasive, and many people fall into the trap.
The good news is that once you know the signs of a scammer, you can protect yourself before it’s too late. Here are some of the most common types of personal loan scams and some strategies you can use to avoid them.
The Most Dangerous Types of Personal Loan Scams
Personal loan scams come in various types, but they all have the same goal: to steal your money or personal information. Consider these popular variations.
Debt Relief Scams
Debt relief scams claim to offer relief from your loans, often by promising to lower your interest rate, reduce your monthly payment, consolidate your personal loans, or even reduce the amount you owe.
Unlike a legitimate company, these scammers will ask for payment up front and then fail to follow through with their promise. They may even ask you to stop making payments on your current loan and pay them instead, which creates problems between you and your lender and can leave you out a significant sum.
There are legitimate debt relief companies, but they will never contact you first. If someone calls you promising debt relief or you see an ad making promises that seem too good to be true, watch out.
📚 Learn more about how to spot debt relief and credit repair scams.
Data Phishing Scams
Many scam artists will contact you claiming to represent a legitimate lender, even a lender you are currently working with. They’ll ask you to confirm your personal data, including things like your Social Security number or even critical banking information. Then, these scammers use this data to steal your identity or, worse, start stealing money straight from your account.
These scams often take place when the criminal already has some of your information and uses that to credibly impersonate a representative of a company you already do business with.
If someone calls you claiming to be from your bank or a lender that you have a loan with, hang up, call the institution directly, and find out if the contact is legitimate.
📚 Learn more about how to protect yourself against identity theft.
Predatory Loan Offers
If you’re looking for a personal loan, then you’ll need to steer clear of predatory loan offers. These offers can come in the form of an app that seems to offer low interest rates or a check that locks you into a crippling interest rate once it’s cashed.
If a lender offers easy money with no credit check, be very careful. That’s often a sign of a predatory loan offer.
Some unscrupulous lenders may even offer a “buy-here-pay-here” deal but trap you with a high interest rate or future balloon payments. These aren’t “scams” in the traditional sense, but they nonetheless represent less-than-savory lending practices that can drain your funds quickly.
How to Spot the Signs of Personal Loan Scams
It’s not always easy to distinguish a legitimate lender from a loan scam artist. There are still warning signs that indicate that you’re dealing with a scammer. Here’s what to look for:
- The Lender Guarantees Approval – “Everyone is approved!”
This is a common promise of certain types of loan scammers. But a legitimate lender will only approve a personal loan after examining your credit score and your debt-to-income ratio. Companies that boast of guaranteed approval are often fraudulent or use predatory practices to steal your money. - The Lender Asks for Money Up Front – Fraudsters often charge an “application fee” or ask for money before they offer their services. Some legitimate lenders may also charge an application fee, but all of these expenses are usually deducted from your loan. If a company requests that you pay using some type of prepaid card or a wire transfer this is a major red flag.
- The Lender Dials Up the Pressure – Lenders will often use high-pressure tactics to strip you of your money or personal data. For example, if you already have a personal loan, a scammer might call you and claim to represent your lender. They may insist that you “act immediately” to confirm your account details, lest you face financial or legal penalties. Don’t cave to the pressure. A legitimate lender will rarely contact you for these sorts of details and they certainly won’t pressure you.
- The Loan Option Expires Soon – Predatory lenders and scammers love to push you into a snap decision. They may offer loan options that expire within 24 hours, pressuring you into making a commitment before you have a chance to shop around. It’s possible for legitimate lenders to offer special deals and rates, but it’s rare to face such strict expiration dates. If the lender doesn’t want you to shop around, it’s a red flag.
- The Lender Doesn’t Tell You About All of the Fees – A lot can be hidden in the fine print. Before you sign that loan agreement, you need to make sure you understand the lender’s fee structure to the dollar. A legitimate lender will offer complete transparency about their services, giving you a clear understanding of your interest rate and any additional charges. If a lender doesn’t provide a clear listing of the loan’s costs, this may indicate that there are hidden charges in the contract that you’d be wise to avoid.
- The Lender Has No Physical Address – Scammers often avoid sharing a physical address in order to avoid scrutiny. Those who provide an address will use a vacant lot or a residential building to avoid being traced. To combat this, you can run the address through a Google search to pinpoint its location. If they don’t provide an address, or the address leads you nowhere, this is a warning sign of a scam artist.
- The Lender Contacts You Directly – Always watch out for lenders who approach you directly. In fact, the Federal Trade Commission has made it illegal to offer a loan over the phone and request money upfront.
👉 Note: If someone calls you to offer a loan, that’s a sign of a scam. In some cases, they’ll even impersonate a legitimate lender or financial institution. But trustworthy lenders rarely seek you out. Those that use cold calls are usually committing some sort of financial fraud.
- The Lender Sends You a Check – Some lenders offer short-term personal loans or payday loans, and they’ll sometimes even send you a check in the mail. But if you endorse the check, you can find yourself locked into a jaw-dropping interest rate or face additional charges. No legitimate lender will send you an unsolicited check. Never, ever commit to an offer you receive by mail, and never sign anything until you’re sure of your commitment.
📗 Learn more: Payday Loan Scams: Common Scams and How to Deal With Them
Tips on Avoiding Personal Loan Scams
How can you avoid personal loan scams? Developing good financial habits can prevent you from being taken advantage of by scam artists and keep your money and your data secure.
- Never Reveal Personal Information – If someone contacts you claiming to represent a legitimate institution, don’t reveal any of your personal data. Even confirming the name of your bank can give scam artists leverage over you. Never reveal your Social Security number or banking data to anyone who contacts you directly.
- Do Your Research – Before you commit to a lender, do your homework. Do they have a legitimate physical address? Do they have any customer reviews? How long have they been in business? You might look the company up using the Better Business Bureau website, or you can use the following government-based tools:
☝️ If you can’t confirm crucial details about the lender, or if you discover bad reviews, customer complaints, or legal action, avoid using that lender.
- Only Use Secure Websites – When shopping for lenders, only use secure websites. How can you tell? Look at the company’s website address to confirm that it starts with “HTTPS.” The S stands for “secure.” A website with just “HTTP” may not be secure. Never share personal data with a website that isn’t totally secure.
- Check the Email Address – Scam emails often use company logos and branding and they often look very professional. Always check the return address. If the address is from a web-based email provider (like Gmail) or any URL other than that of the business, you’re looking at a scam.
No legitimate bank or lender representative will contact you from a non-company email address. - When in Doubt, Contact the Company – What should you do when you receive a phone call, email, or letter from someone claiming to represent a legitimate bank or lender? Assuming this is a well-known organization, you should contact the company yourself through the customer service contact number provided by their official website.
Never reply directly to an email, phone call, or letter unless you’re sure you know who you’re dealing with. That also means avoiding suspicious links that you might find in an email. - Shop Around – One of the best ways to avoid personal loan scams is to take the initiative yourself. Always shop around for the best rates before you make a final commitment. Ideally, you should compare rates from at least three different lenders to ensure you get the best rates and terms.
Never commit to a lender because the offer seems too good to be true — it usually is. And never commit to a lender because of a high-pressure deadline. Otherwise, you could be trapped in a high-interest loan for an extended period.
Be Proactive, Not Reactive
Scam artists prey on the unprepared. Personal loan scams are designed to gain access to your money as well as your personal information. But adopting smart financial habits can protect you from these sorts of scams and predatory loans.
In fact, it’s usually best to seek out a loan program on your own from a reliable lending partner. That makes it easier to ignore the phone calls and emails from lenders claiming to offer a once-in-a-lifetime deal. Taking control of your own finances is the best way to keep your money and your data from the hands of scammers.
