How to spot personal loan scams

When you really need a personal loan and just can’t seem to get a loan application approved, it can be a big relief to finally find a loan provider that offers guaranteed approval or no credit check loans.

But when something seems too good to be true, it probably is. Before applying for a new loan, make sure it's not just another loan scam. In this article, we discuss everything there is to know about personal loan scams.

A personal loan scam is when someone offers you a loan under false pretenses. The scammer or bad actor reels you in by making huge promises of guaranteed approval loans or extremely low-interest rates.

Loan scammers can even use false phone numbers, fake company names, and other tricks to impersonate legitimate financial institutions and eventually gain the trust of unsuspecting customers.

Data Phishing

The scammer can contact you through phone or even visit your workplace requesting for sensitive information like your bank account number, card number, or card PIN for verification purposes. If you end up sharing these details, it can give the scammers control of your accounts and they can start stealing from your account through transactions or direct bank transfers.

Fraud loan apps and websites

Cyber crimes have also become all too common where scammers build copycat websites of financial institutions and trick customers into sharing their account login details.

There are also loan apps, which are technically legitimate registered businesses, but they scam customers through hidden costs and high-interest rates which are often not shared until the customers have taken up the loan. These loan apps advertise by offering guaranteed loan approval or lending without collateral.

No credit check loans

While no credit check loans are offered by some legitimate lenders, these loans are considered bad credit personal loans and there is no guarantee that your loan will be approved.

Even with no credit check loans, genuine lenders do review your credit report. It's just that your credit score is not a deciding factor for approving the loan application. But your credit history is still a big deciding factor.

On the other hand, personal loan scammers offer no credit check loans with guaranteed approval, which is a major red flag.

1 - Upfront payment required

Some scammers make money by asking for upfront payments in the form of fees, insurance, or collateral. A scammer may also ask for a ‘refundable’ amount which they claim to reimburse back to you once the loan is finalized or when the first installment is deducted from your bank account. This is obviously a scam since no genuine lender will ask for a fee to consider your application or check your credit score.

2 - No transparency regarding fees

Loan scammers do not post their fees clearly on the company website and they aren’t even upfront about it when asked directly. In fact, scammers may only tell you about the excessive fees after the loan application is approved.

Yes, there are genuine lenders that don’t always advertise their fees on the website, but they are required by the law to share all the costs involved before you sign up for a loan.

3 - Guaranteed approval

Any and every trusted loan provider checks your credit report generated through one of the credit reporting agencies like Equifax, Experian, and Illion. Lenders check your credit score and your credit history to get a better idea of your creditworthiness. In other words, lenders want to ensure you can pay the entire loan amount in full.

But a scammer doesn’t care about whether you can pay them back or not, because they are already on their way to scam you. As a result, many personal loan scammers will offer guaranteed approval just to get more people to sign up.

4 - No legitimate place of business

Every genuine lender or financial institution will have a physical office or at least a registered address. You should be able to find their address through Google Maps or the lender’s website. In some cases, scammers may even have fake addresses or no physical addresses at all. That is why it is important to verify a lender’s address, especially if you have never heard of the company before.

5 - Continuous pressure

There is usually a sense of urgency when a scammer tries to entice you into a personal loan scam. The goal of the scammers is to trick you before you can figure out their trick.

Scammers can use high-pressure tactics to get you to act immediately through limited-time offers that are just too good to be true. Therefore, you should avoid any kind of loan offers that come with immediate deadlines. Make sure to do your own research and due diligence.

If you have indeed become a victim of a loan scam, there are steps that you can take to ensure the scammers don’t get away with it:

• Write down all the details: Jot down all the details that you can remember right from the moment the scammer got in touch with you. Remembering all the details will help you file a case later.

• Reach out to the credit bureaus: If loan scammers have phished your private information to apply for loans or credit cards under your name, you need to reach out to the credit bureaus to get those applications and credit products removed from your credit report. Too many credit applications can end up severely damaging your credit score. They can also make it difficult for you to get approved for a new line of credit when you actually need it.

• Contact the police: Get in touch with your local police and file a report with them. While the scammers may be clever enough to not leave their footprints behind, filing a police report will be helpful if the scammers end up stealing your personal information. It will also help restore your credit score when you reach out to credit report agencies.

Before you sign on the dotted line or share any sensitive information with the loan company, make sure to do your due diligence. Even if the loan company seems legit and you have heard the company name several times before, check to ensure the loan agent reaching out to you is an actual employee of the company.

Here are a few steps you can take to check if the loan company is legitimate:

• Check their contact information: Review the phone number and company address. Even if the lender only offers a loan through their website, they should still have a physical address.
• Look for online reviews: Search the loan provider on Google to find customer reviews. It's also a red flag if all the customer reviews are five stars and posted around the same time.
• Find company registration details: If the loan provider is genuine, they should be a registered company and you should be able to find its registration details.

While personal loan scams are only increasing, you can avoid them by understanding how scammers work and taking proactive steps. As an important measure, you should not share sensitive personal or banking information with any individual. If you're not 100% sure of the legitimacy of a loan provider, it's always a good idea to do your due diligence and research.