Every day, intelligent individuals fall victim to loan scams, resulting in losses exceeding $2 billion annually, according to the Federal Trade Commission (FTC). Scammers lure victims with offers that seem too good to refuse, masquerading as legitimate personal loan lenders.
Understanding Loan Scams
A loan scam is a fraudulent financial transaction involving a loan or product, as defined by the FTC.
Identifying Loan Scams
Use this checklist to spot personal loan scams:
- The lender lacks a physical address.
- Contact is made via unsolicited social media messages or emails.
- An upfront fee is required before loan approval.
- The loan company’s website is marked as “unsecured.”
- You did not apply for a loan, yet an offer appears unexpectedly.
- The lender shows no concern for your credit history.
Common Types of Loan Scams
Here are some prevalent loan scams to be aware of:
Advance Fee Loan Scam
This scam requires an upfront payment, misleadingly called a processing or application fee. Unlike legitimate loan origination fees, these upfront payments may never result in receiving any loan funds.
Payday Loans
Promoted through various advertisements, payday loans target those struggling financially. Scammers may request sensitive information during the approval process, potentially leading to identity theft.
Government Grant and Loan Scam
These scams often target homeowners needing repairs, claiming eligibility for special loans through nonexistent government programs in exchange for bank details.
Phishing Scams
Phishing scams use fake websites that appear legitimate and may include unsolicited calls seeking personal information. Be cautious of such tactics.
Fake Check Scams
These scams often arise from “work from home” opportunities or “contest wins,” requiring individuals to deposit fake checks, leading to financial losses.
Government Imposter Scams
Often impersonating the IRS, these scams threaten immediate payment or legal consequences for noncompliance.
Debt Settlement Scams
Taking advantage of individuals already in financial distress, these scams promise debt relief by merging loans, often resulting in significantly higher payments over time.
No Credit Check Personal Loans
Reputable lenders always check an applicant’s credit history. Offers for loans without credit checks are often scams aiming to gather personal information.
How to Avoid Scam Loans and Credit Cards
Here’s how to determine if a lender is legitimate:
- Verify the lender’s listing with official consumer protection agencies.
- Avoid lenders without secure websites.
- Do not click on unsolicited email or pop-up links.
- Ensure that lenders are registered in your state.
- Work exclusively with reputable lenders that conduct credit checks.
- Delete any unsolicited communications from unknown lenders.
- Obtain a clear written breakdown of all loan terms, fees, and interest before signing.
Do Legitimate Loan Companies Request Upfront Fees?
No, reputable lenders will never ask for upfront payments. Any such request is a red flag for fraud.
Will Loan Companies Ask for Online Banking Information?
No, legitimate lenders will not request online banking details.
Can You Recover from a Loan Scam?
While pursuing legal action can be difficult, report the scam to the authorities immediately, including local police, the FTC, and your state’s Attorney General’s office.
