From phishing schemes to romance and post-disaster scams, opportunistic con artists are constantly looking for new ways to take advantage of unsuspecting people. Even during a pandemic, online shoppers have had to be wary of unauthorized at-home testing kits and other creative tricks designed to take your money. Americans nationwide reported a staggering 2.2 million incidents of fraud totaling $3.3 billion in losses to the FTC in 2020 alone, and the agency continues to see fraudulent activity on the rise this year, including a huge surge in scams initiated through social media.
Like any attempt to defraud, when it comes to loan scams you’re less likely to fall victim if you understand what the most common loan scams look like, how they work, and how to protect yourself.
A loan scam refers to any fraudulent activity in which a company posing as a lender successfully collects your personal information but fails to deliver the loan you applied for. To know what to look out for, here are the 6 most common loan scams and the tactics scammers use to prey on unsuspecting consumers:
In an advance-fee loan scam, the scammer will contact you to offer you a low-interest loan in exchange for upfront fees. These fees are often worded with legitimate terms like “application fee,” origination fee,” or “processing fee.” After the scammer piques your interest, they’ll ask you to pay those fees with a specific form of non-traditional payment—like an Apple gift card or prepaid debit card.
If you say you can’t make an upfront payment, the scammer will offer to add it to your loan amount and then create a fake electronic transfer to your bank for the total amount. This is a particularly insidious tactic because legitimate lenders will sometimes offer to roll your fee into the cost of the loan if you can’t pay them upfront.
Phishing is an email tactic scammers use to gain access to sensitive information, like your usernames, passwords, and financial data. Phishers use “social engineering”—a means of exploiting people through emotional manipulation—to fool you into providing your personal information. In some cases, this can mean tricking you into opening an email attachment that installs malware on your computer.
Emails sent by scammers are usually tailored to look like they’re from a legitimate source. They often use alarming language to get your attention—like a threat that your accounts will be frozen if you don’t respond ASAP. Once the scammer has gained access to your data, they can easily steal your money or your identity before you even realize what’s happened.
Government imposters often call or email you claiming to represent a federal or state government agency. They’ll insist that you need to provide personal data or money immediately or face serious repercussions. During the height of the pandemic, government scams expanded to include offers for vaccinations, fake COVID cures, and expedited stimulus checks.
In a fake check scam, a person or business contacts you and asks you to deposit a check, cashier’s check, or money order into your account and then wire the money back to them for payment. If you agree, the check they sent you will eventually bounce, and by the time you realize it, the fraudster will be long gone with the money you sent them.
Debt settlement (or debt relief) companies promise they can get your debts canceled or reduced to “pennies on the dollar.” Their business is to negotiate with your creditors and get them to change their contracts with you.
Though some debt settlement companies are legitimate, fraudulent ones will quickly take your money and then fail to fulfill their promise. We recommend better alternatives, like debt management plans or, if you have good credit, consolidating debt with a lower-interest personal loan.
One of the most unfortunate types of fraud comes from opportunistic scam artists who pretend to represent charities during difficult times. Donation or charity scams are very similar to phishing and advance-fee loan scams in that scammers will often pretend to be legitimate organizations. And now, with the prevalence of crowdsourcing and newly created legitimate charities, it can be more difficult than ever to determine what is and isn’t legitimate. Take the time to research any person or organization asking you to donate money.
In addition to fraudulent lenders who ask for money upfront, there are a few key ways to immediately sniff out a loan scam.
All loan offers must be put into writing. You can know immediately that you’re dealing with a loan scammer if they contact you with an offer by phone.
If a lender doesn’t provide a physical address, that’s a clear warning sign. Even if the lender does provide an address, it’s a good idea to plug it into Google Maps if you’re having any doubts. Many loan scammers will list a P.O. Box, an address that’s not theirs, or an address that’s just a vacant lot in an attempt to appear legitimate.
A trustworthy lender will have a secure, functional website featuring details about the company, the types of loans they offer, a way to check rates, and other pertinent information for potential customers. If they don’t have a website or it’s not secure (look for a padlock symbol at the beginning of the URL), that’s enough reason to look elsewhere.
Any reputable lender will want to know basic info before issuing a loan. If they show no interest in your past experiences with credit, that’s a huge red flag. Although some reputable lenders do offer loans to people with poor credit, they’ll still want basic info like your employer and income.
Reputable lenders will always disclose all fees and loan details upfront, and won’t ask you for payment until you’ve been approved. If the loan details seem too general or don’t provide real numbers, there’s a good chance it’s a scam.
Lenders are generally required to be registered in the states where they do business. If this information isn’t easily accessible on the lender’s website, you can check with your state attorney general’s office to determine if the lender is legit.
Just as there are ways to spot a loan scam, these are signs you’re dealing with a legitimate company.
If you’re unsure about a lender, one of the easiest things you can do is check out its customer reviews and look for any negative reports in the news. If customers seem generally unsatisfied, move on.
Legitimate loan companies usually check your credit history, income, and employment so they can approve you for an amount you’re likely to pay back. So in most cases, a trustworthy lender won’t offer you a loan you can’t afford. But keep in mind, it’s up to you to review your personal finances to make sure a loan makes sense. Taking too big of a loan and then defaulting on payments can rack up penalties and fees, even if you borrow from a trustworthy lender.
To be accredited by the BBB, a company has to undergo a thorough and rigorous evaluation. If a lender is accredited, you can rest assured that they’re operating in a trustworthy manner and will make a good faith effort to resolve any customer complaints.
Lenders aren’t legally required to report your payments to the credit bureaus, but it’s a good sign when they do. If you make all your payments on time, you may be rewarded for your good financial behaviors by gaining access to better, cheaper loans in the future.
Knowing how to spot common loan scams can help you avoid identity theft, safeguard your private data, and protect your hard-earned money. If you suspect or fall victim to a scam, the Consumer Financial Protection Bureau (CFPB) recommends contacting the local police office and state attorney general immediately to report the crime, as well as filing a complaint with the Federal Trade Commission.
Losing money or property to scams and fraud can be devastating, which is why it’s important to be able to tell the difference between scammers and a lender you can trust. With LendingClub Bank, completing a personal loan application is an easy, transparent process that takes only a few minutes. After reviewing the information you provide and checking your credit history, we’ll send you an offer if you qualify. We will never ask you to send us any fees or money in advance. Most of our members are approved for a loan within 24 hours and receive their money within 2 days.*
Loan scammers use social engineering to get money and other resources from their targets. They often choose vulnerable populations, like people who have been turned down for loans before or lower-income communities. You can avoid loan scams by familiarizing yourself with scammers’ tendencies and tactics and never giving private information over the phone.
If you’re ever in doubt, you can check with the Better Business Bureau, your state attorney general’s office, or your state regulatory agencies to verify that a lender is legitimate.
If you’re a victim of a loan scam, call your local police, file a report with the FTC, and file a complaint with the CFPB. If the scammer contacted you online, you may also want to file a complaint with the FBI’s Internet Crime Complaint Center. Make sure to write down as many details as you can so you’ll have the same information to share with any entity you contact.
* Of all personal loans approved between 10/1/20 – 12/31/20, 69% were approved within 24 hours. Between April 2021 and June 2021, personal loans were funded within 48 hours after loan approval, on average. The time it takes for a loan to be funded is not guaranteed and individual results vary based on multiple factors, including but not limited to investor demand.
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