5 ways to identify personal loan scams

Learn ways to identify personal loan scams to prevent fraudulent companies from taking your hard-earned money. (iStock)

In 2020, there were 99,667 reports of identity theft for business and personal loans, according to the Federal Trade Commission. This represents a 127% increase from the previous year. If you don’t see the warning sign of a personal loan scam and you fall into a scammer’s trap, your identity can be stolen. In addition, the scammer may take some of your hard-earned money. In addition to taking your money, the scam artist could also hit you with identity theft, potentially leaving you with bad credit 

One way to avoid falling victim to a personal loan scam is to compare offers from multiple legitimate lenders through a lender's website or another safe method to find the best personal finance loan for your needs.

To avoid being ripped off by fraudulent lenders, learn how to identify some common warning signs of a personal loan scam. If you’re looking for a reputable lender, visit an online marketplace like Credible to explore personal loan options.

HERE’S HOW TO AVOID A PERSONAL LOAN COMPANY SCAM

How do you avoid personal loan scams?

To avoid personal loan scams, you should be on the lookout for these five red flags:

  1. The lender guaranteed approval
  2. Upfront fees
  3. The lender offers you a loan by phone
  4. The lender isn’t registered in your state
  5. The lender wants you to wire money or use a prepaid credit card

1. The lender guaranteed loan approval

Before approving you for a loan, a lender usually reviews key factors like your debt-to-income ratio, credit score and income. By doing so, it can assess the likelihood of you repaying the loan or assess higher loan rates for those with bad credit - those with better credit scoring qualify for a better interest rate.

If a loan company tells you it guarantees loan approval without going through this process, this is a sign the loan company may be fraudulent. Legitimate personal loan financial institutions, even those that offer bad credit loans, usually have a review process with credit checks to confirm your income and credit history.

2. Upfront fees

Although some financial institutions may charge you application or origination fees for underwriting the loan, these fees are usually taken from the loan amount. In addition, lenders won’t charge an origination fee to check your rates. If a lender asks for an upfront fee, you might be dealing with a loan scam. 

If you’re considering a personal loan or want to take out a second personal loan, you can visit Credible to compare loan rates and lenders.

3. The lender offers you a loan by phone

It’s illegal for a lender to offer you a loan by phone. If a lender does this, it’s definitely a sign you should run.

5 WARNING SIGNS OF A PERSONAL LOAN SCAM

4. The lender isn’t registered in your state

Lenders are required to be registered in each state it does business in. To make sure you’re avoiding a personal loan scam, double check with the state’s attorney general’s office to see if it’s registered.

5. The lender wants you to wire money or use a prepaid credit card

Legitimate personal loan lenders don’t ask borrowers to wire money or use prepaid credit cards. If a lender insists that you do one of these, don’t do it. The lender is most likely trying to steal your money.

How do you know if a personal loan company is legit?

In addition to a lender being registered in your state, you should focus on these three factors to help you determine if a loan company is legit:

  1. Physical address: A lender that has no physical address or one that uses a PO box for an address is one that you should treat with suspicion. Legitimate companies will display their physical address somewhere on their websites.
  2. Secured website: If the lender’s website isn’t secured, this can be a sign that the company isn’t real. You can see if a website is secure by looking for the padlock next to where you type the website in your browser.
  3. Better Business Bureau: You can use the Better Business Bureau to review a lender. If the lender isn’t listed or has few reviews, it might be a fake company.

To learn more, visit Credible to speak to an experienced loan officer and get your personal loan questions answered.

6 WAYS TO SPOT STUDENT LOAN FORGIVENESS SCAMS

What should I do if I get scammed?

If you’ve accidentally applied for a personal loan with a fraudulent lender, here are four steps you can take:

  1. Call your local law enforcement office to file a report
  2. File a complaint with the Better Business Bureau
  3. File a report with the FTC or the Consumer Financial Protection Bureau
  4. Try to recover the money you lost by contacting your bank or credit card company

The bottom line

To avoid personal loan scams, you should watch out for the common red flags discussed in this article. Ignore lenders that guarantee approval, offer loans by telephone or ask you to wire them money. Once you find a reputable lender, you can focus on more important things, like what to use your personal loan for.

If you want to speed up the process of finding a reputable lender, visit Credible for the best personal loan rates.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.