Key takeaways

  • A lender can't guarantee loan approval without a proper evaluation. A guarantee for approval is a red flag.
  • Take your time to read the fine print. Walk away if you find hidden or upfront costs or if you cannot find verifiable accreditation or registration connected to the lender.
  • Prioritize the verification of secure online interactions before giving away any personal details.
  • Educate yourself on cybercrime trends to protect yourself and your assets.

Fraudulent lenders and other criminals have adapted to the digital world, costing loan scam victims billions of dollars. The Federal Trade Commission (FTC) estimates losses to consumer fraud in 2023 amounted to more than $10 billion. The largest contributor was investment scams, but personal loan scams were also in the mix.

Personal loan scams involve the exploitation of those needing financial assistance. Scams tend to target those who are vulnerable and desperate. They lure the needy to hand over personal information or pay upfront fees to gain quick access to a loan.

How to recognize signs of loan scams

With this type of crime rising, it’s more important than ever to do your due diligence and be alert for personal loan scam artists.

Celia Winslow, executive vice president of the American Financial Services Association (AFSA), offers simple advice to avoid potential scams: if it sounds too good to be true, it likely is.

As with a number of online fraud schemes, the offers that are often too good to be true, usually are just that, especially ‘now or never’ offers. Consumers should always be aware of potential phishing or financial fraud schemes designed to get them to share personal financial information, such as credit card or bank account information. — Celia Winslow, executive vice president of AFSA

Consider the following tips to avoid potentially damaging scams.

1. Unrealistic guarantees for approval

One of the easiest ways to spot a loan scam is the promise of guaranteed approval. All legitimate lenders need to see your financial details before approving you. They will usually require detailed information and documentation.

If approval is guaranteed, this is a good indicator that the lender is not above board.

Approval guarantees are often linked to consumers with poor credit histories or financial difficulties and may promise credit that’s too good to be true. If your loan is declined, you can improve your chances of qualifying for a legitimate loan without turning to something that looks as promising as an approval guarantee.

Bankrate tip

If you struggle to access funds due to your credit history, compare bad credit personal loan rates where you are more likely to gain acceptance.

2. Upfront fees and hidden costs

Surprise costs you must pay upfront before you receive the loan money are a big red flag. Most reputable lenders don’t insist on upfront fees. Instead, they deduct the fees from the loan amount or include them in the repayment terms.

If you get “approval” for a loan that depends on immediately paying the lender, it’s probably a scam, and it’s time to walk away.

3. Pressure to act immediately

Scammers often employ high-pressure tactics to convince people to make hasty decisions. This will often be in the form of limited-time offers or proposals with consequences if they’re not accepted immediately.

Scammers may even threaten or pressure people with legal action or other negative repercussions if they don’t act immediately. Legitimate lenders value informed decision-making. They are usually willing to give people the time and information they need to weigh their options carefully.

Look at alternate options if you’re pressured to act immediately without enough information.

4. Unsolicited loan offers

Another good way to spot a scam is if it comes as an unsolicited offer, usually over email, text message or social media. A telephone offer is an immediate red flag. It’s illegal for telemarketers to offer you a loan or other credit over the phone and ask you to pay for it upfront.

Legitimate lenders typically don’t use unsolicited outreach campaigns or spamming tactics to attract customers. Instead, they rely on traditional marketing strategies.

It’s also a good idea to avoid engaging with potential lenders on social media and go through other official channels instead. Social media platforms have become a hunting ground for cybercriminals and scam artists.

Once you’re familiar with the details of a personal loan and whether you want one, you should go through a trusted loan aggregation platform to look for offers or research a lender’s official website and contact them directly.

5. Vague or absent contact information

Legitimate lenders use transparent communication channels and offer contact information so borrowers can reach them with inquiries or concerns.

Scammers often avoid listing contact information, making it difficult for people to get their money back once the relationship turns sour. Always do your due diligence and verify potential lenders’ contact information.

6. Lack of physical address

Legitimate lenders generally operate from a physical location you can verify with basic online research. If a potential lender doesn’t have a physical address, do extra research to ensure it is legitimate.

Expert insight

Many online lenders don’t have locations you can visit, but they should still list a mailing address. If you choose to borrow online, Winslow recommends taking extra precautions, like not clicking on unexpected links or attachments and using the Better Business Bureau or the Federal Trade Commission to check on the lender’s reputation.

7. No registration or license

If you suspect a scam, one of the easiest ways to validate the lender is by verifying credentials and regulatory compliance.

Legitimate lenders must be licensed and regulated by the state or a federal regulatory agency. If the lender can’t verify its registration or license status, you’re probably dealing with a scammer.

The Federal Trade Commission suggests contacting your state attorney general or banking and financial services regulator to confirm whether or not a lender is registered in your state.

8. Unsafe websites and requests for personal information

You should always make sure that any website that requests your personal or financial information is secure and properly encrypted. Look for indicators such as “https” in the website address (not just “http”) and a padlock icon in the browser bar signaling a secure connection.

Websites of legitimate lenders should be secure with the necessary data protection safeguards in place. If you’re uncomfortable with a website’s security protocols, it’s a good sign you shouldn’t fill out the application.

Steps to take if you suspect a loan scam

If you suspect a loan scam, take immediate action to protect yourself from further harm and to mitigate potential losses. Here’s what you should do:

  1. Cease communication: First and foremost, it is wise to stop communicating with and making payments to the scammer. This will not only prevent further losses, but it can also help prevent identity theft.
  2. Gather evidence: Gather detailed information and any evidence of the scam you have in your possession. The more details you can remember, the easier it is to report the scam and take the next steps to protect yourself.
  3. Report the company to the relevant authorities: These may include the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB) or local law enforcement agencies.
  4. Cover any losses: Check if you have fraud theft insurance on your homeowners policy to cover losses for identity theft. Homeowners insurance may only cover your expenses to fix issues resulting from identity theft, but it can be helpful in the event of a scam.
Bankrate tip

Monitor your bank accounts regularly for any suspicious activity or unauthorized transactions. Consider placing a fraud alert or credit freeze on your accounts to prevent further losses. There are multiple ways to protect yourself from phishing scams for loans and other types of online banking fraud.

How to find a reputable lender

The best way to avoid falling victim to a loan scam is to be proactive.

If you get a personal loan by applying to reputable lenders yourself, you’re far less likely to get scammed. However, you may attract ads from untrustworthy lenders or scammers. Always verify the lender and confirm their regulatory and licensing compliance.

It’s critical to go through legitimate channels to secure a loan. Any lender worth trusting will take the time to walk you through the loan details down to the fine print. They can also advise you on how to manage your personal loan and save money.

Winslow says, “When in doubt, turn to a wide range of lenders who operate brick and mortar branches or offices, where customer service staff can sit down and walk a consumer through the loan process and answer any questions.”

The bottom line

If you know what to look for, the signs of loan scams shouldn’t be hard to spot. Educate yourself on the latest scam trends. Don’t ignore the red flags, regardless of how tempting the offer may be. Any guaranteed approval loans, unsolicited offers or loans requiring upfront fees are likely too good to be true. If you’re suspicious about a loan offer, report the incident to the authorities immediately.

Always prioritize transparency, a secure online presence and legitimate registration when comparing personal loan offers. If you are careful and stay informed, you’re much less likely to become a victim of a personal loan scam.

Frequently asked questions

  • Not necessarily. Some lenders may send prescreened offers of credit. But if a loan falls into your lap, do your due diligence to verify that it isn’t a scam. Pay close attention to the terms of the credit and ensure that it is coming from a licensed lender.
  • To find a legitimate personal lender, start by looking at unbiased reviews. Many reputable sites, including Bankrate, offer personal loan reviews. You can read about borrowers’ experiences before sharing any personal information.