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How to Spot Personal Loan Scams | Personal Loans and Advice

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Personal loan scams can devastate your bank account or steal your identity. Scammers may try to lure you with guaranteed approval, pressure you to act immediately, or make other seemingly legitimate loan offers that are too good to be true.

Scams can take many forms but employ similar tactics. It pays to know the signs of personal loan scams to protect yourself and your money.

How to Spot Personal Loan Scams | Personal Loans and Advice

Common Personal Loan Scams

These are some examples of common personal loan scams to watch out for:

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  1. Advance-fee scam. A scammer charges an upfront fee for a loan that never materializes.
  2. Phishing. Scammers use emails or text messages to try to trick you into clicking on a link or opening an attachment and giving them your personal and financial data. “Promises for loans and easy approvals with links to applications that look authentic can be phishing expeditions for your personal information, including personal and bank account information,” says credit expert John Ulzheimer, formerly of Equifax and FICO. “The best practice is to never click on links that are within emails or text messages or social media posts. If you really want to apply for credit, you can proactively visit a lender’s website and fill out the application online from their website.”
  3. Debt relief. These services may charge cash-strapped consumers a steep upfront fee but then fail to settle or negotiate their debts.

How to Spot a Personal Loan Scam

A little skepticism can go a long way in helping you avoid a personal loan scam.

“Human beings want and need to trust each other by default,” says Robert Siciliano, security expert and CEO of Safr.Me, a security education company. “However, being skeptical and conducting thorough research before providing personal information or making payments upfront can help protect you from falling victim to personal loan scams.”

Watch out for these signs of a bad lender:

  • Requires upfront fees. Legitimate lenders don’t ask for payment before you can get a loan. If you come across a lender that makes this demand, just walk away.
  • Guarantees approval with no credit check. No reputable lender can promise loan approval without assessing your creditworthiness. A legitimate lender will review your credit history and your income to make sure you can afford the loan.
  • Lacks a secure website. The lender’s website should begin with “https” rather than “http.” The s stands for secure, indicating that the site is using a secure sockets layer certificate. Also, look for a lock symbol near your browser, which means no one can intercept communication between your browser and your web server.
  • Pressures you to act immediately. Scammers often use high-pressure tactics such as limited-time offers to push you into making quick decisions. Trustworthy lenders will not force you into deciding on the spot.
  • Does not do business in your state. A lender may be a scammer if you can’t verify licensing in your state or confirm the physical address with a tool such as Google Maps. A legitimate lender will have a valid physical address that is clearly listed on its website.
  • Contacts you first. Trustworthy lenders will not cold-call you, send you letters or emails, or arrive at your door. A lender who reaches out to you first could be a sign of a scammer trying to access your banking information.

Are You a Target for a Loan Scam?

Anyone can fall victim to a loan scam, but some people are at greater risk than others. You may be at high risk of loan scams if you’re struggling financially because you may be more desperate for cash and feel as if you are out of options.

“The financially illiterate, underserved populations and those who are desperate due to life circumstances are the low-hanging fruit targets,” Siciliano says.

Loan scammers can take advantage of people who urgently need money and ignore red flags, such as guaranteed approval.

Other vulnerable groups include older Americans and consumers who lack financial literacy. Anyone unfamiliar with how personal loans work may not realize that something is off in the application process. People with limited access to traditional financial services are particularly vulnerable.

Whatever your risk level, proceed cautiously with personal loans and only work with credible lenders. Contact your state’s attorney general to make sure the lender is licensed to do business there.

What to Do if You’re a Victim of a Loan Scam

Immediate action is critical if you’re a personal loan scam victim. Take these steps to minimize any damage:

1. Stop communicating with the scammer. You want to avoid sending more personal or financial information than you already have.

2. Document scam-related evidence. Examples include emails, text messages, phone numbers or any other types of correspondence. “This information may be helpful for law enforcement and if you need to dispute any fraudulent charges with your bank or credit card company,” Siciliano says.

3. File a police report. Contact your local police department for information about how to file a report. Share your evidence when you file the report. Request a copy of the report in case you need it later as proof of the incident. Also, report the scam to the Federal Trade Commission.

4. Contact the companies involved. This may include your credit card company or bank, which can tell you how to cancel transactions and advise you on next steps. Your bank or your credit card company may be able to freeze your account or issue you a new card to prevent further fraudulent charges, Siciliano says. You may be too late for some charges, though, especially if you wired money.

Siciliano says severe fraud cases or high dollar amounts may require a financial counselor or attorney who can help you navigate the situation.

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Fake Personal Loan Companies to Avoid

The list of fake loan companies is practically endless. Assume that if a lender doesn’t seem to be legitimate, then it isn’t.

Before you apply for a personal loan, always check that you’re working with a real loan company. A legitimate personal loan company should have a:

  • Secure website, verifiable physical address and contact information.
  • Reliable reviews and ratings, such as Better Business Bureau or Trustpilot ratings.
  • Professional communication, including good grammar.

Verify the lender’s licensing in your state, which means the company is legally permitted to offer loans where you live.
“Like Mom said, ‘If it’s too good to be true, it is,'” Siciliano says. “If an offer seems too good to be true or if you feel pressured into providing personal information or paying upfront fees, be skeptical and run in the opposite direction.”

Sarah Goldberg
Sarah Goldberg

Sarah is a seasoned financial market expert with a decade of experience. She's known for her analytical skills, attention to detail, and ability to communicate complex financial concepts. She holds a Bachelor's degree in Finance, is a licensed financial advisor, and enjoys reading and traveling in her free time.

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