Personal Loan Scams: 5 Warning Signs
According to the Federal Trade Commission (FTC), Americans are scammed out of billions of dollars each year, with losses generally rising. While investment scams are the most common, loan scams exist, too. Before borrowing money (especially online), protect yourself by learning the signs of a personal loan scam.
- Legit loan lenders should not ask for upfront fees, guarantee that you’ll be approved, make unrealistic promises about clearing debt or cold call you.
- Research the lender with official sources like the FTC and Consumer Financial Protection Bureau (CFPB) before accepting a loan.
- There are steps you should take if you get scammed, including freezing your credit and reporting the incident to the FTC.
5 personal loan scam red flags
Some criminals specifically target those people who are in a tight financial spot. When it comes to personal loan scams, these criminals may:
- Convince you to fill out an “application” to gain access to your personal information
- Get you locked into a cycle of debt with a high-interest loan
- Charge you a fee for a fake loan
Let’s take a deeper look at some red flags you should keep an eye out for if you’re considering a personal loan.
1. The lender asks for out-of-pocket fees
Reputable personal loan lenders don’t ask for out-of-pocket fees to apply for a loan, review loan paperwork or access personal loan funds.
Some personal loans come with fees, one of the most common being an upfront origination fee. Origination fees are meant to cover the cost of loan processing and are usually a percentage of your loan, or sometimes a flat fee.
Rather than charge origination fees out of pocket, lenders typically roll these costs into what you owe. For instance, if you get a $10,000 personal loan with a 5% origination fee (in this scenario, $500), you’ll owe $10,500, plus interest.
Prepayment penalties, or a fee for paying your loan off early, also aren’t common for personal loans. If the loan offer has a prepayment penalty built into the contract, you may be working with a shady company.
2. The lender advertises guaranteed approval
Legitimate lenders cannot decide whether you qualify for a loan until you submit an application. Guaranteed approval doesn’t exist.
It can be easy to become a victim of a loan scam if you have bad credit and are having a hard time getting approved. Some scammers entice borrowers with the promise of a “guaranteed approval” in order to collect sensitive information, with no intention of offering a loan.
No loan is guaranteed until a loan agreement is signed. Even no-credit-check loans have eligibility guidelines to meet, such as citizenship and annual income requirements.
3. You get an unexpected loan offer, especially by phone or email
A legitimate lender won’t make unsolicited loan offers over the phone or via text (especially “preapproved” pitches you didn’t request).
Some marketing outreach can be legitimate, but if you didn’t ask for a loan, be on guard if a lender reaches out to you first. Unsolicited loan offers are a way that scammers can get ahold of your information or convince you to pay a fee.
If you don’t recognize the number, you might not want to answer the phone.
Ask LendingTree experts
As someone who has personally dealt with loan offer scams, I highly recommend ignoring these phone calls from numbers you don’t recognize and blocking them. Don’t call the number back – this could lead to even more scam calls – even if it looks like a local or legitimate number.
4. The lender or company promises to clear your debt
Lenders that promise to clear your debt could be a debt consolidation or debt settlement scam.
No matter the debt relief option you take, skip any company that promises that it can completely clear your debt. This is an overpromise.
Debt consolidation is the act of taking one large loan and using it to pay several smaller bills, usually credit cards. Generally, most people who shop for loans on LendingTree are looking to consolidate their debt.
A debt consolidation company can’t promise to clear you of your debt because a debt consolidation loan is a type of debt itself.
With debt settlement, you usually stop paying your credit cards and give that money to a third-party debt settlement company to save. After you’ve saved enough to negotiate, the debt settlement company will ask your creditors for a deal on less than the amount you owe.
Not all credit card companies are willing to negotiate. This is highly dependent on the company’s internal policy, the borrower’s history with the company, how much is owed and more.
5. You’re having a hard time verifying the lender
It’s not enough to check the lender or company’s “contact us” information. You must check official channels.
- State license: Although lenders don’t always have to be licensed in your specific state to offer a loan, consider checking the company’s legitimacy with your state’s bank regulator.
- FDIC-insurance status: If the lender claims to be an FDIC-insured bank, you should be able to find it using the FDIC’s BankFind tool.
- Credit union status: If the lender claims to be a credit union, look for it in the National Credit Union Administration’s Credit Union Locator.
- CFPB complaints: The CFPB maintains a customer complaint database. Use it to look up the company and check for problematic trends.
- FTC Enforcement Actions: See if the company you’re working with has had any scam or identity theft problems by searching for it in the FTC Legal Library.
How to find genuine personal loan offers
Although there may be scams out there, online personal loans can be safe as long as you do some research. To make it even more likely that your offers are genuine, you could:
- Check with your bank/credit union: You could see if your current bank or credit union offers personal loans (not all do). If it does, you can likely be sure that the loan is safe. You might get a multiproduct rate discount, too.
- Use a trusted marketplace: Online loan marketplaces like LendingTree work with a network of trusted lenders. You fill out one form, we send it to our partners and we’ll get banks to compete for your business.
What to do if you think you’re being scammed
If you suspect you were involved in a personal loan scam or that a scammer tried to target you, it’s essential that you act quickly.
Protect your money
- Call your bank or credit card company to try to put a stop payment or dispute fees you may have already paid. You may also need to close accounts to prevent further damage.
- Call the lender and let it know that a scammer is using its company name. Do not call any numbers that the scammer provided you. Look for the company’s contact info via its official website.
Protect your identity and credit
- Freeze your credit with each credit bureau (Equifax, Experian and TransUnion). Doing so helps stop the scammer from continuing to borrow in your name, and it only takes a few minutes to do online.
- Place a fraud alert on your credit report. This notation requires lenders to take extra steps to verify your identity before completing a loan or credit card application. You only need to place a fraud alert with one credit bureau, and it will notify the other two.
- Consider signing up for credit monitoring. While taking this step won’t stop what’s already happened, doing so can help prevent new identity theft and/or fraudulent activity.
Report it
- File a police report. The police may not find the suspect, but it’s important to create a paper trail.
- Report fraud to the FTC to help stop the scammer from harming other consumers in the future.
- File an identity theft report with the FTC if your identity has been stolen. This will create a personalized recovery plan to help you get your affairs back in order.
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