Ways to Spot Personal Loan Scams

Consumers lost nearly $3.3 billion collectively to fraudulent practices in 2020, according to the Federal Trade Commission. Potential fraudsters pounce on those who are most in need or the most likely to accept a fake offer. If you’re not careful, you might find yourself on the receiving end of a personal loan scam where you could potentially lose money.

You can learn how to check if a loan company is legitimate and avoid being a victim of fraud. Here are common signs of a potential loan scam.

1. The lender guarantees approval

Truly reputable lenders make it clear that they’ll need to look at your credit, sometimes getting reports from all three major credit bureaus (Equifax, TransUnion and Experian). Most Lend for all need to know whether you have a history of paying bills on time and in full to make sure you’ll be diligent about repaying a loan.

They tend to seek high-risk borrowers who are likely to fall behind on loan payments and incur excessively high late fees and penalties. Steer clear of any lender that guarantees approval or makes claims like:

  • “We don’t care about your past. You deserve a loan!”
  • “Bad credit or no credit? No problem.”

There are reputable lenders that offer bad-credit loans. These lenders consider more than your credit score when determining your eligibility. However, these lenders will still typically ask for things like your income, employment information and education before offering you a loan.

Takeaway: Do your research to make sure you’re working with a lender that’s interested in your previous financial history, even if it isn’t all that great.

The Federal Trade Commission (FTC) requires that lenders and loan brokers register in the states where they conduct business. Check the lender’s website to verify the list of states where it legally conducts business. Checking registration is a key step to ensure that you’re dealing with a reputable company, separating the frauds from the legitimate businesses.

2. The lender demands a prepaid card or other payment upfront

General, the scammers claim they need the information for insurance, collateral or fees. This is a scam. A prepaid card is a big red flag.

It’s virtually as untraceable as cash, and you won’t be able to report it as stolen if you’ve given it to a lender.

3. The lender calls, writes or knocks

If you get a loan offer by phone, through the mail or even through a door-to-door solicitation, be on your guard.

According to the FTC, it’s illegal for companies to offer a loan in the U.S. over the phone and ask you to pay before they deliver. It’s a violation of The Telemarketing Sales Rule.

Takeaway: A reputable lender will not target you over the phone, through direct mail or through door-to-door solicitation. Look for lenders that advertise through traditional online and mass media.

4. The lender has no physical address

Run it through Google Maps just in case. Some businesses running personal loan scams will list addresses that are actually vacant lots, so it’s important to verify this.

If you don’t find any sign of a physical address, avoid the lender. Many fraudulent businesses are untraceable so they can avoid legal consequences.

Takeaway: Don’t do business with a company that cannot provide a physical address, and always verify that the address is legitimate before you proceed.

5. The lender pressures you to act immediately

Don’t fall for the urgency plea. One of the hallmarks of personal loan scams is giving you an immediate deadline to sign on for a loan because the offer expires quickly — like within a day.

Or the lender could communicate that something bad is about to happen, like the revocation of your driver’s license or a lawsuit filing, if you hang up without acting fast. Lenders that use such high-pressure tactics could be up to no good. It may be a ploy to get you to make a rash decision without having time to do your research to uncover the scam they’re running.

6. It sounds too good to be true

The reality is if a personal loan offer sounds too good to be true, it probably is. Legitimate lenders won’t just call you out of the blue with an irresistible loan offer, and you likely won’t qualify for a loan with an unbelievably low rate without having to apply and undergo a hard credit pull.

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