Definite Guide to Fraudulent Loans And Lending Fraud

Need money?  You’re in luck. Many lenders will give you the amount in no time, depending on who you are. If you have strong credit, you can get low-interest loans fast.

But most people won’t likely qualify for these. Without a good history, loans become a complex, long process with tons of paperwork. Because why would a lender trust money to an unreliable person?

Some lenders decide to give such people a chance: free loans for everyone, no matter your history. Even when the main banks and lenders don’t approve your loan, there’s still someone willing to give you that chance.

fraudulent loans

Why would they? Good question.

If the deal doesn’t make sense, you’re likely dealing with a fraudulent lender. Everybody wants money, and if you can’t see what’s in it for the other person, he may be trying to scam you.

Loan Scams: The Easy-Money Trap

Loan Scams The Easy Money Trap

If a stranger on the street approaches to give you money, would you take it? Would you feel confused? Uncertain? 

If you were the lender, would you “lend” to a random person on the Internet? Obvious answer.

Yet, that’s what they show you on the ads. People pose as loan professionals accepting anyone. Why would lenders deal with such a risk? They don’t. They have an (evil) plan.

Fraudulent loans can be seen in different varieties. The victims may be individuals or financial institutions. Fraudulent loan schemes generally prey on:

  • vulnerable individuals and groups,
  • the unemployed,
  • yhose who have bad credit ratings,
  • those in immediate need of money for whatever reason.

Fake loans are confidence tricks and misrepresented facts. You find someone who wants free money, prove that you can do it, wait until the borrower does his part, and run away with their money.

The promise? “Get free money fast with a two-minute application no matter what.”

With this hook, fake lenders can pull any tactic: advance-fee scam, phishing, credit fraud, cramming, forgery, anything.

As lenders, we want to qualify our borrowers for security reasons. Why don’t we do the same as borrowers?

How Do Loan Scams Work?

A fake loan lender will:

  • Ask you to pay upfront.
  • Charge you more than what you agreed on paper.
  • Change the agreement on his interest without telling you.

You may wonder: “How did I end up dealing with a scammer?”

That’s because they use outbound tactics to get your attention. Advertising, cold email, phone calls, social media targetting.

They will also:

  • Create fake branded websites to look professional
  • Create listings on the leading loan sites to get views

They search for people with no history who are desperate for easy money. Preferably, someone who makes decisions based on fear or greed.

With enough trust and urgency, a victim will follow instructions before getting the loan, upfront costs included. They will overlook conditions and rush through the paperwork: an ideal target.

If you ever get any money, it’s probably fake (see fake checks).

When Is It Too Late To Go Back?

Bad news: if you lost money, you could possibly never get it back. According to the loan program, it’s your responsibility to manage the funds. The loan site can repay you from their pocket. It’s between you and your lender.

A scammer has to find an unsuspecting victim, get permission to steal their money, and run away so that you can’t revert the losses.

Once the con man has control, you can’t protect.

  • The moment you send money or share your information.
  • Once you sign the contract and receive the funds.
  • When something isn’t right, and the lender stops responding.

But getting control requires persuasion skills. A scammer prefers identity theft tactics to speed up the process, and if it doesn’t work, he makes a direct approach.

How To Tell Fraudulent Loans From Legit Lenders?

How To Tell Fraudulent Loans From Legit Lenders

You are borrowing to get money, not give it away. You can’t afford to waste time on promising lenders who don’t deliver. You neither want to get a loan that’s impossible to pay back. 

Make these observations to detect (and avoid) fake lenders.

Generalism: One Size Fits All

What’s the problem with no-qualification loans? They don’t care about your history or conditions, so there’s no chance they will offer the solution you need.

A lender can promote universal loans but then hide the conditions to mislead borrowers. Who knows if those terms can change later.

Generic conditions give control to the lender. They would treat a good borrower the same way they treat low-credit clients.

Not caring about the borrower’s history is a sign they won’t serve your best interests. Personalized requests take longer to approve but ensure the best loan for you.

No Contact Information

The fastest way to verify your lender: contact information. 

  • Do they include all relevant credentials?
  • How fast do they respond when you reach out?
  • Did they register in the same territory where they’re doing business?

The FTC requires lenders to license in the same state of the business. Not doing it may create confusion with the regulations of your state, which could be a red flag.

A (dishonest) lender can advertise to all the states to get visibility. Do not assume they work on your area only because they mentioned it on the ad; no one will check the legitimacy of such a claim in the ad and as such it can easily be faked.

In case things go wrong and you choose to report, the FTC will ask you for the lender’s information. If you don’t, you won’t be able to report a scam.

Pay To Borrow

The lender accepts to work with anyone. Low-credit borrowers message him for the loan, and he says “Yes”. But because of your history, they need an upfront payment or collateral to trust you.

It makes sense: lenders can’t trust anybody. The problem is, you’re left with no protection: nothing but a hopeful promise.

“Give $200, and you will get your $10K loan.”

At least, you could use an escrow service to give control to a third party, not the lender. This could be a good option, but be on the lookout for fake escrow services.

You may ask: “Why would they steal $200 from me when they have $10,000?” Well, you don’t know if they have that money. All you’ve seen is a promising listing, which is not enough to assume the result.

No History

It sounds so obvious, but not that easy to spot with the right persuasion skills.

This lender may be a new company with other terms. You may have the luck to be their first client, which is why nobody heard from them before. Upon the opportunity, you say to yourself: “This time is different!”

No matter the offer, you never want to carry the weight of uncertainty. You need help already; you can’t tolerate any more risk.

If you’re in debt, don’t fool yourself thinking it can’t go worse. The credit score is there for a reason: so that lenders can work with the right people and avoid loan scams.

No Google reviews? Nothing on Yelp? Not even on Better Business Bureau? Let it pass and look somewhere else.


Have you ever felt like you can contact only when it’s convenient for them? If a motivated lender wants to reach out, you’ll find out quickly: emails, advertising, phone calls.

What if you want to ask some questions? You message the lender, but he doesn’t reply. Or he does once they have to guide you through the next step.

Evasive communication— especially after getting trust— is a fraud tactic to hide the facts and not get caught. It only confuses the victim because it’s evident the suspect is onto something sketchy.

Types Of Loan Scams

Types Of Loan Scams

Checking for red flags is a good place to start although not enough to prevent scams. What if the con man steals the information of somebody you trust? You would instantly give the green light even if the red flags point to a scam.

Perhaps they play with your emotions, saying you have nothing to lose and everything to gain, so you choose to take the risk. Be aware of the many faces scammers use:

Identity Theft

Scammers always prepare. Before you hear of them, they’ve already studied everything you’ve done, who you know, and what companies you trust.

If they approach as a new lender, they will fake their social proof to present as something they aren’t. If they know you have worked with X company or bank, they will impersonate them to get your trust.

For some reason, we like to trust well-known institutions and friends regardless of the evidence. For example, you may ask an old friend to lend you some money online. What you never expect is that your friend has the identity stolen. Yes, a scammer who has researched your profile can do that.

And what about banks? These large buildings have tight cyber-security. An email from your bank must sound important, even if you never got any before.

Then, they can:

  • Get you into their fraudulent loan program
  • Steal your money
  • Rob your identity

Collateral Required

A lender asks you to share the risk. The catch is, he wants you to take the risk before approving the loan process. Without lending anything, you’re already getting money. The lender has no obligation to move forward, meaning it’s your responsibility.

You may claim to have $10K as a lender, even if you can’t prove it. Now, imagine your great deal attracts a dozen borrowers who pay you upfront. With enough fools, you can make thousands of dollars easy and run away.

Don’t be a prey of the advance fee scam. If you can’t get the loan without the collateral, pay upfront. Just not to the lender, but a reputable middleman with no incentives.

Pawn Shop Loan Scams

If you don’t qualify for other choices and need money now, pawn shop loans could work. But be ready for high collateral.

You can offer a pawnbroker a valuable item and get a loan for a fraction of its price, around 15%. Before the due date, you pay off the loan and get back the item.

Although it sounds good in theory, mind that the terms are NOT in your favor. You may not be risking your credit score, but you could expose yourself to other problems:

  • If you don’t pay back your loan, you lose your item. Statistics show most people who take these loans never get the item back.
  • If the dealer sells the item, you lose your item. 
  • If you change the terms after signing the agreement, you pay a canceling fee and exit with less money than when you started. The longer the contract, the more you pay.
  • If the pawnshop is fraudulent, you lose your item. 

You don’t typically find dishonest pawnshops because these are real locations. Report and get your money back if there was a mistake. But the risks should be enough to discourage most people; it’s not a scam, but a very bad decision. Thankfully, not your only choice.

Debt-Targeted Loan Scams

For scammers, it can be a waste of time to deal with victims who have no money to steal. You can’t expect to rob much unless you deal with debtors.

A person who took loans in the past shows that they qualify for them and can get into debt. Thus, if a scammer convinces them they can help their situation, the victim can borrow more money they don’t have for the con man.

When targeting debtors, fake lenders can cross-sell their loan offer with other services: debt negotiation, forgiveness, or credit relief. If it’s the exact thing the borrower want’s to hear, they will offer to pay upfront, thinking the lender wants what’s best for them.

Mortgage Fraud

People who try to avoid losing their homes often become desperate. This leads them to explore creative and unusual financing options. Creative financing is a term that has been used in the mortgage industry for a long time now. Unfortunately, with this type of financing the consumer could commit mortgage fraud without even realizing it.

Some unscrupulous mortgage brokers looking for a quick buck may actively encourage you to engage in fraud, and even convince you that it’s perfectly legal.

If consumers are not aware of the dangers, they can fall victim to deception and misrepresentation. Before you engage in a transaction, take out your calculator and do the math. It is also important to consult a lawyer before signing any contracts.

4 Tactics Scammers Use To Look Legit

4 Tactics Scammers Use To Look Legit

We’ve shown how impersonation makes victims overlook the red flags. It disables them from suspecting a scam, just as the following tricks do. Unlike red flags, these are too hard to recognize, so you’ll never know unless you do an in-depth research.

a. Credibility Markers

Nothing stops fraudsters from creating fake testimonials, cases, Google reviews. If the reward is big enough, be sure they will work hard to make it work. 

  • They create fake accounts to refer you to them (fake social proof)
  • They create a website and register in the popular platforms
  • They brag about security and certifications, such as “A+ rated by BBB in February 2020.”

b. Forged Documents And Cloned Sites

A scammer can prove any certification manipulating documents. With the right skills, a ten-minute edit is enough to fool the experts.

In their website, they can falsely claim to have got reviews from BBB or Trustpilot. When review manipulation doesn’t work, they will clone these trusted sites and enter the information they want you to see.

c. Early Money Orders

Without warning, the lender has already sent you the money, either via checks or online. Having these funds misrepresents how easy it is to get loans with this lender. It makes the borrower feel forced to move forward. (also see e-com overcommitted buyers)

If you get a loan hours after applying, it may not be a coincidence. Later, the lender requests you an early collateral payment, which you accept. 

A few days later, you may have spent some of that money plus the “fee” you paid the lender. But after a week or so, it bounces back, and the loan funds go back to the buyer. If you had no money before the loan, your balance would be negative.

d. Urgency

The lender— who contacts multiple borrowers— tells you to move fast because others want the loan too. They make up deadlines to encourage impulsive action and disqualify you for not being “serious enough.”

How To Prevent Loan Fraud

How To Prevent Loan Fraud

Why are you taking loans in the first place? Most people do because they need money fast. The money they can’t get by themselves, perhaps because they have no income stream, or they’re in debt.

If you have this sense of urgency, thinking too fast may make you lose the money you try to get. Before taking a loan, make sure you trust the right person to help you. 

Here’s what we’re looking for:

  • A lender experienced working with other borrowers, reviews included.
  • A specialist, not a generalist who charges everyone a flat fee.
  • Someone who will take an interest in your credit history. No legitimate lender will lend you money without checking that you are able to repay it.
  • A preventive lender to protect the borrower and undo the contract in case of fraud.
  • A loan company who won’t ask for any kind of upfront payment.
  • Someone with good customer service whose staff will not only answer your questions, but offer suggestions as well.

If you only search for the lender reviews, you will only see what they want you to see. You won’t see the other side of the coin unless you actively search for it.

Why? Because they could be trying to manipulate google, which in turn will show only good results about them. Anyone can claim 100% transparency, but then hide inconvenient truths, making sure you can’t find them. 

You won’t find a single bad review on their website. But if you search on Google or Trustpilot, you could find them. But move to the second and third pages of google to make sure you’re uncovering all of the reviews that a company may be is trying to hide.

Mind that any service will have some bad reviews. The question is: do they repeat the same complaints? Are they recent? 

If you add the word “scam” to your search, you’ll find controversial reviews. Be aware that they may be posted by competitors who are trying to damage a good company as well. You may not know if a review is exaggerated or real, but it’s much better than relying on the official source exclusively.

Never Work With A Single Lender

Once we get a good deal, it’s too easy to forget about the many opportunities out there. If you find something you don’t like, it may not be worth it. 

As buyers, we use to stick to what we know. But why waste time when they’re better options out there? If you contact many lenders at once, you’ll know the terms the average lender will accept. Anything outside the norm requires caution.

Avoid Too-Easy Loans

If a nobody can get this amazing loan, you shouldn’t. Think outside the box: if you were the lender, why would you deal with such risks? Would you give it to anyone?

The debt problem has cost America over $1.5 trillion. What percentage of people do you think won’t return a loan? Unless they try to scam borrowers, lenders must feel quite skeptical.

If most people can qualify for the loan —and most people are in debt— the chances are that’s not the loan you need.

Protect Your Agreement

Before signing, double-check to make sure you only follow what’s stated on paper. Also, ask for what’s NOT included to avoid surprises. A sneaky scammer can work on your interests the whole time, but then change the last agreement, hoping you won’t notice.

But a document means nothing if you’re indeed dealing with a con man. That’s why you should ask for a back-up plan in case the other person doesn’t follow the terms. You can reserve the right to refund or hire an escrow company to coordinate payments.

Ask For Audits

As you searched for the best loan offer, you probably discarded many that were great, but you didn’t qualify. Even if you won’t apply, contact these reputable lenders and ask them to guide you on the process.

They’ve been there for long and are better than you detecting the scams of their business. You mention this bogus lender you met, and they’ll help you set the right expectations. Most of them would do it for free.

Lastly, you can ask for advice on BBB or look for similar cases on review sites (like Trustpilot).

How To Stop A Loan Scam

How To Stop A Loan Scam

People don’t usually inform about scams until they happen to them, which may be why you’re reading this guide. Even if they’ve conned you, you still have a chance to stop the scam and (maybe) get money back.

Prepare An FTC Report

For serious matters, make sure you get expert help first. You have the best chance to recover when you share as much data as you can: address, number, your ID, when it happened, and how.

If you have the luck to get the con man’s credentials, the FTC could contact the fake lender and make a refund.

Improve Cyber Security

If the suspect has got into your accounts, updating security is an effective way to stop further harm. 

If you have some authentication steps, remove and create them again. Update passwords and remove all trusted devices. It doesn’t hurt to set up a credit alert until you solve the problem. 

If You Got Money, Send It Back (or don’t use)

If you suspect a scam and get money, take it as if you didn’t get a loan. A lender wouldn’t send money without following the verification steps: it could be fake.

If you spend that money, you’d be using yours, not the sent money, which may bounce back to the lender. There’s no reason to give the loan upfront. When it’s not a P2P transfer, it’s a fake check.

Is It Worth Getting The Refund?

If the amount you lost isn’t relevant, the pain of getting the refund will be greater than assuming the loss. If you open a dispute, it will require a lot of information and time, no guarantees. 

It doesn’t mean you can’t recover. But if you spent 20 hours on a $100 fraud investigation, you might want to save your time and not look back.

Examine Crutial Documents

Some of the most crucial documents in the analysis of any loan fraud file are:

  • 1) HUD-1;
  • 2) loan application;
  • 3) loan submission form;
  • 4) escrow instructions;
  • 5) the preliminary title report.

These few documents often serve as a blueprint of the fraud, showing the trail of money and the identity of the people who stood to gain. Properly analyzing and highlighting these documents will assist your attorney in more effectively representing you, and in developing a plan of attack.

The effectiveness of your attorney increases exponentially if he or she can litigate your case, i.e., examine witnesses, conduct depositions, etc., having complete knowledge of the motivations and involvement of each of the parties.

Funding Alternatives

Funding Alternatives

The best way not to fall for loan scams is to not take any. You may have thought of borrowing as the only choice when there are actually better options out there. 

Arbitrage & Reselling

Why don’t you have the money you need? Some people increase their spendings as soon as they make more. If you’re that person, you may already have the money you need.

After consuming brands for years, you may have stored a lot of products, from electronics to clothing. You can sell it online at a discount and make a thousand or two.

Necessary? No, but before taking a loan, make sure you’ve done everything you could to get that money. You may not need one after all.

Ask Trusted People

If you’re going to lend, find if you can avoid those interest rates. Have you asked your friends, family, or a bank? With an accurate repayment plan, some people may lend you money regardless of your history.

Don’t Just Store It

For lenders, time is money. Every second you don’t use your loan, it costs you. Your priority should be investing money to multiply it, so you don’t need any more loans in the future. If you’re going to spend it on liabilities, invest a part to get some ROI.

The moment you pay back the loan, you already end up with less than when you started. If you spend it well, you can break even.

Smart Financial Habits

One unfortunate event shouldn’t be able to sink your finances. If so, it comes from making poor decisions.

Why do you need money? It’s recommended to already be making money before taking a loan. More money won’t fix bad financial habits.

Loans should be an income accelerator, not a rescue plan. The next time you take one, ask:

  • How am I going to spend it?
  • Are these expenses essential?
  • How much margin do I need for unexpected losses?

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