How to Identify & Avoid Personal Loan Scams

We all experience unpredictable events in our life. From time to time, you may need more money than you have to respond to those events. Get fired at work? Relationship issues? Medical emergencies? 

For your convenience, many helpful lenders will offer you generous amounts. Right at the right time, these people reach out and come up with an offer that’s too good to be true.

Money may solve problems. But how much does it matter Who you trust to help you? Is lending from a bank the same as taking “free” money from a criminal? What comes after Who: here’s the difference between true opportunities and con men baits.

Who Can You Trust?

Personal loans require the lender to qualify borrowers cautiously. Also known as unsecured loans, they don’t offer any asset as collateral, meaning you’re risking the amount with an unreliable debtor. All you have to bring a sense of safety is a dubious promise: I’ll pay you back.

Naturally, personal loans present higher interests than a mortgage or car loan. For the borrower, it may seem the lender will accept any individual or amount. But the harder it’s to repay, the more interest they load onto you: a debt trap.

Personal loan scams end up costing you more instead of saving money. Sometimes, debt gets so big that you’d have made your needed money faster by earning it directly. No, interest rates aren’t your only risk: scammers are.

Why Do People Fall For Loan Scams?

In a certain way, you’re also a risk for yourself: your emotions. Desperation, greed, fear, or hope can do crazy things to your mind, leading to flawed decisions. For a con man, that confusion is a golden opportunity to gain your trust:

  • Desperation: You need money now. You have payments pending, and time is not in your favor. This pressure leads to making mistakes.
  • Rejection/Fear: No matter how hard you try, every trusted institution seems to reject your application. You worry whether you ever get a loan, so you start looking for non-conventional lenders hoping for approval.
  • Opportunity: Good deals draw attention. The loan you’ve seen looks so much better than the average market offer that you don’t want to miss out. You attach your expectations to that lender, although it could be fraudulent.

Is taking personal loans a good move? It depends on your purpose. Never look for loans assuming scammers won’t find you: they are a real threat.

Warning Signs: How To Spot A Fraudulent Lender

How do you tell a comprehensive loan from a con man hook? Easy: look at who’s selling it. The best loan doesn’t find you: you have to find it. If instead, someone reaches out with a great deal, and you can’t say “No” to it, it’s a hook.

a. Lenders don’t care about your history

How do loan scammers work? They know loan scam awareness is increasing. At the same time, they don’t want to waste time with smart people who’ll spot the scam later on. What do they do?

They craft a template to look like a legit lender, yet they leave tiny clues to alert and filter hard-to-scam people. Those clues are these red flags, like instant loan approval.

Scammers need to send thousands of emails before a few victims respond. It’s not possible to target such a large mass without a generic email sent to you.

They may know your name and contact information, but they don’t care about any other data. No matter what you send, you get approved instantly, so you can start making the initial repayments.

Generic loans remain too abstract to consider them as real. If you can’t get into detail, it’s better to give up on the lender. Your loan may not exist.

b. Guaranteed approval

Fast approval means the lender didn’t care much about qualifying borrowers. It also means you may have overlooked your interest conditions, meaning he’ll take advantage of you. 

You should apply with different lenders at once. If every single one rejects you but one, you want to know why. If there’s no particular reason, you may be signing into a fake loan or dealing with a scammer.

c. Urgent call-to-action

There’s no doubt the loan looks attractive. But just as you showed interest, fifty different borrowers want to work with that lender. At least, that’s what he says.

Strategic decisions take time. 24h to 48h, at least. The fear of missing out prevents clear thinking, so you can’t recognize loan fraud. Don’t emotionally attach too much to an offer that may not exist. That time limit could mean the lender is a scammer, and he only has limited time before he gets caught.

If you think about it, making decisions too quickly may be the reason you have no money in the first place.

d. They call, write, or knock

In a scam, you don’t find the best deal: the lender finds you. They show you what you’ll get, what you need to do, and how to pay. At first, at least you had control of what you wanted to do. Now, you’re blindly following instructions because you can’t afford to miss that loan.

Don’t call it luck: there’s a reason they showed it to you, and that reason screams “scam!” Legit lenders must be so good that they don’t waste time emailing borrowers: those who really need them will find them.

Loan Scam Variations

If it’s not a real loan, then what is it?

A. Advance Fee Loan

The scammer offers you a (fake) loan. You trust their words, not the (non-existing) documents. In mortgage fraud, they call it “air loans:” you pay for nothing.

Why pay for a loan? Because you can’t unlock the funds unless you pay a processing fee or offer goodwill money. Yes, they all use the same excuses to squeeze cash before you see your loan.

One payment leads to another, which serves to delay the invented loan until they can no longer fake it.

B. Brokerage Scams

Worse than losing money is losing control. Would you be surprised if the lender you speak to does not own the money they want to lend? 

The problem with brokers is: what they show doesn’t always stand for both parties’ interests. Rather than helping to communicate, dishonest brokers do the opposite:

  • They sell you loans the lender didn’t agree upon.
  • The agent registers the borrower for an unmanageable loan.
  • They sneak both parties with payment tricks, collecting fees in the process.

Even if you talk to legit brokers, your loan still becomes more expensive. Talk to lenders directly.

C. Re-Loan Rescue Plans

Loan scams go hand in hand with debt relief: an opportunity to profit twice from the same victim.

How To Avoid Debt Relief Scams

Once the debtor realizes his mistake and falls behind his loan payments, he’ll search for help. What would a scammer do?

  • They may pose as if they can meet with the borrower. They agree to negotiate a better repayment plan or forgive the loan. You don’t need to pay for their service unless they deliver, which only takes some forgery and imposter tricks.
  • A predatory lender offers as a debt relief agent who will resolve your case. You pay a fee, and they send you the money to pay your lender. Well, they won’t tell you they signed into a second loan to repay the first. You’re out of funds with a new lender and higher interest rates. 

Borrower, Beware Of These Loan Forgiveness Scams

D. Imposter Scams

But you’re no fool. Let’s say you don’t trust private lenders as much as big brands (Avant, Upstart, LightStream, Banc of America, and so on). They rejected your previous applications.

One day, you receive an email from some of these banks. Congratulations, they granted you a loan! You just need to complete the sign-up process or send an initial fee.

Unfortunately, it’s a scam. Bankers don’t email potential borrowers unless you have a near-perfect score. Instead, you’re talking to an international scammer. You wire money overseas, and they disappear: that’s your loan.

You should check our phishing and identity theft guide. Con men will pose as well known brands, sending you to fake cloned sites so that they can get your bank information and money.

How To Respond To Loan Scams

Many lenders offer money, but finding the perfect loan could be just as hard as earning that money yourself. Here are a few simple steps to make the task easier:

  • Check for online presence. You may not hear about good private lenders because they’re not as popular. They should still, however, have some reputation. Who have they lent money? What are their reviews? If their offer is better than the average, find out why.
  • Talk to multiple lenders. Finding one super-loan may tempt you to discard any other options. Don’t: the exception to the rule doesn’t always show the truth. Multiple loan applications give you experience and perspective.
  • Keep your data safe. It matters a lot for a scammer to have a victim who needs money to respond to them. If they couldn’t scam you before, they’ll try another way under a different name. Stay alert to imposter scams and phishing attacks.
  • Know how to report before you need to. Most people don’t care about claiming because they don’t think they will get scammed. On the contrary, they’re too ashamed to notify if they fall for it. Filing on time heightens the chances of returning your losses. Create a report at IC3, including as much information about the scammer as you can.

Prepare yourself for any kind of suspicious lender with the Definite Guide to Fraudulent Loans And Lending Fraud.

Putting It Together

Personal loans involve higher risks other than interests. Avoid compromising to an amount you don’t believe you can repay, and don’t be overly optimistic. Give yourself a 50% error margin, and only borrow if there’s no other choice: don’t do it without an already active repayment plan.

More importantly, ask: Is it worth it? Because debt may cost you something more valuable than money: your time.

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