6 Common Loan Scams to Watch for in 2022

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.

6 Most Common Types of Loan Scams

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:

1. Advance-fee loan scams
2. Phishing scams
3. Government imposter scams
4. Fake check scams
5. Debt settlement scams
6. Donation or charity scams 

1. Advance-fee loan scams

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. 

Red flags of an advance-fee loan scam:

• Asking for money upfront: Ignore any ad, email, or cold caller guaranteeing you a quick loan in exchange for a fee paid in advance, and never give them your credit card or bank account numbers. Legitimate lenders will charge you a fee after your loan has been approved, not before.
• No credit check: Most Legitimate lenders will not approve a personal loan without first reviewing the borrower’s credit report and credit score. Scammers often target individuals or businesses with bad credit or debt problems, and entice them with loan offers that legitimate financial institutions can’t provide. If they don’t ask for your credit report, they may not be a real institution.
• The offer is too good to be true: Fraudsters often claim they have special connections or can find loans other companies can’t. If the loan credit limit is higher or the interest rate is lower than anything else you’ve seen, be on high alert—especially if you have poor credit. If it sounds too good to be true it usually is.
• Pressure to make a decision immediately: Scammers will often pressure you to make a decision immediately, even if you haven’t seen an official offer. Legitimate lenders will never push you to sign for a loan before you’ve had a chance to review the rates and terms.

2. Phishing scams

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. 

Red flags of a phishing scam:

• Unexpected email attachments: Never open an email attachment from an unknown sender, even if it looks like it’s legit or from a trusted contact. Phishers are getting better at impersonating entities like banks, credit card companies, and social networks, which means it’s easier than ever to fool even the savviest of targets. If you have security software installed on your computer, it should catch a lot of would-be malware, but don’t rely on it as your sole line of defense.
• Poor grammar and structure: In an age of fast-paced communication, it’s not unusual to spot the occasional typo or misplaced comma in an email from a legitimate lender. However, most businesses have a process for reviewing email content before it’s sent out into the world, so multiple errors should be an immediate warning sign. Phishing emails often “sound” strange and contain misspellings, missing tenses, transposed words, and generalities.
• Familiar email address: Phishing scammers know you’re more likely to open and trust the content within an email if it looks like it was sent by a company or person you know. They do this by subtly adjusting the domain name of the sender’s email address. For example, if the correct email is robert.smith@paypal.com, a phishing email may come through as robert.smith@pay-pal.com. The subtle addition of the hyphen could be the only clue that it’s a scam. One way to catch a fake email is to hover over the link to see the destination address. If it looks unfamiliar or shows a destination that’s different from the domain, report it or delete it.

3. Government imposter scams

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. 

Red flags of a government imposter scam:

• Means of contact: The IRS will never contact you by email, text, or social media with information about money matters. When you do receive emails from the government, they’ll always come from a “.gov” extension. If you have any doubts, use a web browser to search for the email address. Official government email addresses will likely show up in search results; scam emails will not.
• Law enforcement impersonation: Similarly, members of law enforcement will never call you asking for sensitive data or payment to avoid getting arrested, fined, deported, or detained. Law enforcement scammers may even provide badge numbers or names of real law enforcement officials to seem legit and scare you into complying. Don’t give in to the pressure—just hang up.

4. Fake check scams

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. 

Red flags and variations of a fake check scam:

• Job offers: The scammer will claim to offer you a job and send you a counterfeit check to deposit. Under the guise of the job’s responsibilities, they’ll give you instructions to return or send some of the money in a particular form, such as a wire transfer or gift card. When the check inevitably bounces, you’ll be out the money that you sent, plus any bank fees resulting from the bad check.

• Lotteries or sweepstakes: The scammer will send you a fake cashier’s check for an alleged foreign lottery win, then ask you to immediately wire them money to cover taxes or fees.

• Overpayment: The scammer will pretend to want to buy something that you’re selling online. They will then “accidentally ” send you a check for more than the cost of the item, and ask you to return the difference. Ultimately, you can wind up losing the money and the item you’re selling.

5. Debt settlement scams

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. 

Red flags of a debt settlement loan scam:

• Asking for money upfront: Just as with advance-fee scams, non-reputable debt settlement companies will often ask you to pay a “registration” or “processing” fee in advance. Not only is this unethical, it’s illegal. Ignore any debt settlement company asking to be paid upfront.
• Guaranteeing debt forgiveness: Getting creditors to reduce or forgive your debt is a negotiation, not a promise. No business can guarantee that all your debt will be settled.
• Advising you to stop making payments: Never trust a company that advises you to stop paying or communicating with your creditors. This will get you nowhere with your debts and only serve to further damage your credit.

6. Donation or Charity Scams

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. 

6 Ways to Quickly Spot a Loan Scam

In addition to fraudulent lenders who ask for money upfront, there are a few key ways to immediately sniff out a loan scam.

1. The lender doesn’t provide anything in writing.

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. 

2. The lender doesn’t have a valid physical address.

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. 

3. The lender has a suspicious website (or none at all).

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. 

4. The lender doesn’t care about your credit history.

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. 

5. The loan details are murky.

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. 

6. The lender isn’t registered in your state.

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. 

Signs of a Trustworthy Personal Loan Company

Just as there are ways to spot a loan scam, these are signs you’re dealing with a legitimate company. 

1. The lender has a favorable online presence.

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. 

2. The lender offers you a loan that makes sense.

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. 

3. The lender is accredited with the Better Business Bureau.

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. 

4. The lender reports to the three credit bureaus.

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. 

The Bottom Line

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 Scams FAQs

1. How do loan scams work?

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. 

2. How do you know if a loan is legit?

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. 

3. What do I do if I get scammed by a loan company?

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.