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Personal Loan Scams: How To Spot And Avoid Loan Frauds

Miranda Crace6-minute read
UPDATED: April 05, 2024


When you need to borrow money, make sure you trust the source of your financing. According to the 2023 report from the Federal Trade Commission, U.S. consumers lost over $10 billion to frauds and scams – a 14% increase from the previous year. With the number of loan scammers on the rise, it’s important to know what to look for so you can avoid being scammed.

Let’s walk through some of the personal loan scams that are out there, red flags to watch for and the actions you should take if you believe you’ve been scammed. 

What Are Personal Loan Scams?

People can use personal loans for just about any purchase or expense, and some scammers are unfortunately ready to pounce on those wishing to borrow cash.

Loan scams can come in many forms. Some scammers operate under the guise of a fake company or agency to steal your personal information – including, perhaps, your identity – or gain access to your bank account through your credit card or Social Security number.

Here’s a list with some of the most common types of personal loan scams:

  • Advance-fee loans: Any loan that requires an upfront payment of any kind is likely a scam. In most cases, you’ll never hear from the scammer again once you’ve made the payment.
  • No-credit-check loans: Most legitimate lenders closely review your credit history to determine your creditworthiness. If a lender doesn’t seem to care whether you have a low credit score and doesn’t ask for other financial information, they could be running a scam.
  • Debt consolidation scams: Some fraudsters will offer to consolidate your debt, but pay attention to how they go about it. Scammers may suggest you cut off contact with your creditors or pay an upfront fee.
  • Debt relief or forgiveness scams: Fraudulent debt relief servicers will offer to eliminate or lower your outstanding debts – but not until you’ve paid a large upfront fee. Debt relief scammers will often target people with student loan debt and offer loan forgiveness, but you should only trust federal government programs in connection with student loan forgiveness.
  • Phishing scams: Phishing refers to scammers who contact you via email or text message and usually include a clickable link they say will bring you to an application page. Don’t click on this type of link, which can allow scammers to access your personal and financial information.

Loan scams are slightly different from predatory lending, which will often offer legitimate loans but charge high interest rates and fees to trap borrowers into cycles of debt.

How To Spot Personal Loan Scams

Next up is an overview of red flags that loan scammers are known to show when they’re attempting to fool you. Keep an eye out for these common warning signs of a personal loan scam.

Guaranteed Loan Approval

A major sign that you might be dealing with a scammer is the lender guaranteeing you approval, usually without a credit check. The scammer’s goal is to attract low-credit-score borrowers who maybe can’t get a personal loan approved anywhere else. More legitimate lenders would want to review your credit report and determine how likely you’d be to pay the loan back in full.

Some legitimate lenders offer loans to borrowers with no credit history, but these lenders will typically request information about your income, employment and other personal finance matters, or they’ll require that you insure your loan in another way.

Upfront Fees

Legitimate lenders will never ask you to pay upfront fees before you receive a loan. If a loan offer demands you make an upfront payment, the offer could be from a loan scammer. Some legitimate lenders may ask you to pay an application or origination fee, but usually only after they’ve looked at your credit history or approved you for the loan.

The Lender Being Unregistered In Your State

Any lender must register to conduct business in any given state. Legitimate lenders will be sure to list on their company website the states they’re registered in. If you don’t see a list or can’t verify that the lender is licensed in your state, play it safe and seek out lenders that can confirm their registration. 

Unsolicited Loan Offers

If you need to borrow money, most lenders will let you reach out to them. Lenders calling, texting or emailing you with on-the-spot loan offers aren’t to be trusted. In fact, the FTC says it’s illegal for lenders or telemarketers to offer a loan over the phone, especially if they demand upfront payment. Recorded sales pitches over the phone, or “robocalls,” should also be suspect.

Lending institutions can, of course, advertise their services, but legitimate lenders will do so in a public format rather than contacting consumers directly.

Pressure To Act Immediately

Loan scammers will likely attempt to tell you their offer won’t last long and that you must decide quickly whether to take the deal. Legitimate lenders know that whether to get a loan is no small decision, and they wouldn’t attempt to pressure you. While not all deals last long, you should still have a few days or even weeks to make your decision.

No Physical Company Address

Reliable lending institutions, even online lenders, should have at least one physical address you can quickly look up online. This physical address and other contact information for the business should be visible and easily accessed on the lender’s website. Some scammers may present a fake address, so always confirm the location via online map services.

The Website Not Being Secure

A secure website will have “https” at the beginning of its URL – the “s” standing for secure. No longer present beside your browser, though, is the old “lock” icon, which Google not all that long ago replaced with a more neutral icon so users would no longer associate the lock with a website’s trustworthiness. The new icon is intended to send the message that security is Google Chrome’s setting by default. 

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How To Avoid Personal Loan Frauds

You can help yourself dodge scammers in your loan search by looking out for the aforementioned red flags and paying attention to what makes a lender seem reputable.

When shopping around for a lender, take the following steps to play it safe:

  • Search their website for contact information, including a legitimate address, email and phone number.
  • Read online reviews to see if people have worked with the lender before and described their experience.
  • Look for proper grammar and spelling usage on websites, messages or other advertisements.
  • Search for a lender on the Better Business Bureau® (BBB) website to see how the BBB rates them and ensure they’re legitimate.

Once you find a reputable lender you can trust, the personal loan process should be a relatively smooth journey.

What Should You Do If You’ve Been Scammed?

Scammers are seemingly getting smarter all the time, and you wouldn’t be the first person to be tricked by one. In the unfortunate circumstance that a loan scammer has taken advantage of you, take one or all of these steps:

  1. Cut off communication with the scammer. Once you realize you’re working with a scam artist, cease all contact immediately. Any further communication could inadvertently give the scammer even more personal or financial information.
  2. Contact your bank or credit union. Call your financial institution as soon as possible to cancel transactions, freeze your accounts or issue fraud alerts. Your bank or credit union may even contact you if they suspect your identity was stolen.
  3. Document the scam however you can. Gather emails, texts, screenshots and any other evidence of the scammer’s actions. The larger the paper trail you can gather, the more likely you are to end up with a positive outcome after reporting the scam to authorities.
  4. File a report with the police. Contact your local law enforcement and submit a report of the scam, being sure to include any documentation you’ve gathered. An official police report could help stop or even catch the fraudster.
  5. Reach out to the appropriate agencies. You can help prevent future scams by reporting your story to the FTC and BBB as well as your state attorney general’s office and even the Federal Bureau of Investigation (FBI). The website will let you anonymously report loan scams to the National Consumers League.
  6. Replace your lost cash. Depending on how much you’ve lost to a scammer, you may need to replenish your finances. A personal loan from a legitimate lender could help you afford your monthly bills while you’re waiting on a resolution for the scamming you experienced.

Final Thoughts

Loan fraud is more common than ever, and consumers should be wary of all the obvious signals of loan scams. Stay on the lookout for lender red flags and be thorough in your research – you’ll be sharing your personal and financial information with this lender. Look for signs that a lender is legitimate, too, and be prepared to act quickly if you find you’re working with a scammer.

Want to borrow from a source you can trust? Start a loan application today with Rocket Loans℠.

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Miranda Crace

Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years.