Tips for spotting and avoiding personal loan scams
Our goal here at Credible Operations, Inc., NMLS number 1681276, referred to as “Credible” below, is to give you the tools and the confidence you need to improve your finances. Although we promote the products of our partner lenders who pay us for our services, all opinions are ours.
When you are in desperate need of cash and don’t know how to identify legitimate lenders, it can be easy to fall for a personal loan scam.
Consumers reported 99,667 identity theft cases in 2020 for business and personal loans, according to the Federal Trade Commission. This represents an increase of 127% over the previous year. If you don’t see the warning sign of a personal loan scam and fall into the trap of a scammer, your identity may be stolen. You could end up with fraudulent information on your credit report and a scammer could steal some of your hard earned money.
To avoid getting scammed by fraudsters, learn to identify certain common warning signs of a personal loan scam.
If you are looking for a reputable lender, visit a online marketplace like Credible to explore personal loan options.
What are personal loan scams?
A personal loan scam occurs when a person claims to be a legitimate personal loan lender. While their deceptive tactics vary, they can promise to give you a personal loan for an upfront fee, send you a fake check in the mail, or even trick you into completing a bogus personal loan application.
The main goal of the scammer is to trick you into giving them money, sensitive personal information, or both. Once they have your important data, they can steal your identity and apply for credit on your behalf. If successful, they can cause significant damage to your credit, which could temporarily prevent you from qualifying for much-needed financing or for an apartment or house.
6 red flags of a personal loan scam
It can be difficult to tell a reputable lender from a fake if you don’t know what to look for. As crooks are constantly evolving their tactics, here are six common warning signs to help you identify potential scams.
1. The lender guarantees the approval
Before approve you for a loan, a lender typically looks at key factors such as your debt-to-income ratio, your credit rating, and your income. In doing so, he can gauge the likelihood that you will repay the loan or charge higher loan rates for those with bad credit – those with better credit scores are usually eligible for a loan. best interest rate.
If a loan company tells you that they guarantee loan approval without going through this process, it is a sign that the loan company may be fraudulent. Legitimate personal loan financial institutions, even those that offer doubtful debts, usually have a review process with credit checks to confirm your income and credit history.
2. Initial costs
Although some financial institutions may charge you an application or origination fee for taking out the loan, these fees are usually deducted from the loan amount. Legitimate personal lenders don’t ask borrowers to wire money or use gift cards or prepaid credit cards. Plus, lenders won’t charge origination fees to verify your rates. If a lender asks for an upfront fee, you could be dealing with a personal loan scam.
3. The lender offers you a loan over the phone
It is illegal for a lender or telemarketer to guarantee that you will qualify for a loan over the phone in exchange for a fee, as this violates the telemarketing sales rule, according to the Federal Trade Commission (FTC). If a lender is doing this, it is definitely a sign that you should run.
While you can be approved for a personal loan over the phone, it does involve contacting a lender. A lender should not contact you unsolicited. Once you have contacted the lender, they will ask you to provide financial and personal information to complete your loan application.
Thereafter, you will need to review and sign a loan agreement before your funds are issued.
If you are considering a personal loan or want to take out a second personal loan, you can visit Credible to compare loan rates and lenders.
4. The lender is not registered in your state
Lenders must be registered in each state in which they operate. If a business is not registered in your state, it is illegal to offer you a personal loan. If a business is not registered in any state, it could be a sign of a scam.
To make sure you’re avoiding a personal loan scam, check with your state attorney general’s office to see if the company is registered.
5. The lender contacts you directly to offer you the loan
While a legitimate lender may send you pre-qualified offers through the mail as an advertisement, they will not contact you directly to solicit your business. If you receive a pre-approved or pre-screened offer – sometimes in the form of a check that you can cash – be sure to carefully review the loan terms and comparator before cashing the check.
Keep in mind that a real business will require you to submit a formal request that includes personal and financial information and perform a credit check.
6. Lender says no credit check is needed
If a lender says no credit check is required, proceed with caution. It could be a warning sign. Some expensive lenders, like payday loan companies, forgo credit checks but charge a very high effective interest rate in return.
A legitimate loan company will do a thorough credit investigation to determine if they should approve your loan.
How to know if a personal loan company is legitimate
In addition to registering a lender in your state, you should focus on these five factors to help you determine if a loan company is legitimate:
- Physical address – A lender who does not have a physical address or who uses a PO box for an address is the one you should treat with suspicion. Legitimate businesses will post their physical address somewhere on their websites.
- Secure site – If the lender’s website is not secure, it can be a sign that the business is not real. You can see if a website is secure by looking for the padlock in the browser’s address bar.
- Better Business Bureau – You can use the Better Business Bureau to review a lender. If the lender is not listed or has little notice, it could be a bogus business.
- View online reviews – Reading reviews online can help you get a feel for what other people think about the personal lender. But if you can’t find any reviews or the ones you find look suspicious, it could be a sign to avoid the lender at all costs.
- Veterinarian contact details – Find a phone number and call to confirm it is a real business. A lender who doesn’t list any contact information on their website may have poor customer service at best and an outright scam at worst.
To find out more, visit Credible to compare rates from several personal lenders.
What if you get ripped off?
Following the steps above can help you avoid scammers, but it does not eliminate the risk of fraud. If you think you’ve been scammed, here’s what you can do:
- Gather the evidence. Collect all the evidence you can think of. This includes any loan agreements you’ve signed, phone calls, emails, or letters you’ve received in the mail.
- File a police report. Contact your local police department to file a report. Keep a copy of this report, as you may need it for additional steps.
- File a report with the appropriate agencies. In addition to filing a police report, you must file a report with other agencies by visiting IdentityTheft.gov, the Consumer Financial Protection Bureau, and your state attorney general’s office. Some of these agencies may be able to help you recover some of your funds or recover from identity theft.
- Review your credit reports. If you have provided the scammer with important personal information (such as your social security number), it is important to check your credit reports for signs of identity theft. You can check your credit reports with the three major credit bureaus – Equifax, Experian, and TransUnion – for free weekly at AnnualCreditReport.com until April 20, 2022. To protect yourself against credit fraud, consider freezing your credit.
How To Find A Legitimate Personal Loan Company
Here are four steps you can take to find a legitimate personal loan lender:
- Use a market like Credible. Consider using Credible or a similar online marketplace that connects you with reputable personal lenders. By doing this, you can save time in researching if a lender is legitimate.
- View reviews online. Read reviews online to learn about the experiences of other people working with a lender. If the reviews are missing, it could be a sign that the business is fraudulent.
- Research the financial institutions you already know and work with. If you already have a relationship with a bank, credit union, or online lender, see if they offer personal loans. You may be eligible for a relationship discount, which reduces your interest rate by a certain percentage, if you qualify.
- Get recommendations from trusted friends, family and coworkers. Don’t neglect your network. Ask someone you trust if they have ever taken out a personal loan and if they would recommend the lender they have worked with.