7 ways to spot personal loan scams

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Consumers lost nearly $3.3 billion collectively to fraudulent practices in 2020, according to the Federal Trade Commission. Potential fraudsters pounce on those who are most in need or the most likely to accept a fake offer. If you’re not careful, you might find yourself on the receiving end of a personal loan scam where you could potentially lose money.

You can learn how to check if a loan company is legitimate and avoid being a victim of fraud. Here are common signs of a potential loan scam.

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7 ways to spot personal loan scams

While this isn’t a comprehensive list, some of the most common ways to spot a personal loan scam include the following:

  1. The lender isn’t interested in your credit history.
  2. The lender isn’t registered in your state.
  3. The lender demands a prepaid credit card.
  4. The lender calls, writes or knocks.
  5. The lender has no physical address.
  6. The lender pressures you to act immediately.
  7. The lender is not transparent about its fees.

1. The lender isn’t interested in your credit history

Truly reputable lenders make it clear that they’ll need to look at your credit, sometimes getting reports from all three major credit bureaus (Equifax, TransUnion and Experian). Most lenders need to know whether you have a history of paying bills on time and in full to make sure you’ll be diligent about repaying a loan.

Fraudulent businesses aren’t interested in your creditworthiness. They tend to seek high-risk borrowers who are likely to fall behind on loan payments and incur excessively high late fees and penalties.

There are reputable lenders that offer bad-credit loans, taking into account more than just your credit score when determining your eligibility. However, these lenders will still typically ask for things like your income, employment information and education before offering you a loan.

Takeaway: Do your research and make sure you’re working with a lender that’s interested in your previous financial history, even if it isn’t all that great.

2. The lender isn’t registered in your state

The Federal Trade Commission (FTC) requires that lenders and loan brokers register in the states where they conduct business. Check the lender’s website to verify the list of states where it legally conducts business. If a lender you’re interested in does not list any registered states, you could be dealing with a loan scam.

Checking registration is a key step to ensure that you’re dealing with a reputable company, separating the frauds from the legitimate businesses.

Takeaway: Verify lenders are registered in your state before sending over banking and personal details. If they don’t operate in your state, they don’t have the authority to loan you money.

3. The lender demands a prepaid card

Some scammers have been known to require prepaid debit cards or gift cards from borrowers, claiming that they need it for insurance, collateral or fees. This is a scam. Legitimate financial institutions may charge a fee for your application, appraisal or credit report, but those charges are deducted from your loan.

A prepaid card is a big red flag. It’s virtually as untraceable as cash, and you won’t be able to report it as stolen if you’ve given it to a lender.

Takeaway: Never use untraceable payment methods, like a gift card, prepaid debit card, or cryptocurrency when dealing with a lender. You should accept a wire transfer, direct deposit, or a check you can deposit into your checking account.

4. The lender calls, writes or knocks

If you get a loan offer by phone, through the mail or even through a door-to-door solicitation, be on your guard. According to the FTC, it’s illegal for companies to offer a loan in the U.S. over the phone and ask you to pay before they deliver.

Takeaway: A reputable lender will not target you over the phone, through direct mail or through door-to-door solicitation. Look for lenders that advertise through traditional online and mass media.

5. The lender has no physical address

Every lender you’re interested in should provide a physical location. Run it through Google Maps just in case. Some businesses running personal loan scams will list addresses that are actually vacant lots, so it’s important to verify this.

If you don’t find any sign of a physical address, avoid the lender. Many fraudulent businesses are untraceable so they can avoid legal consequences.

Takeaway: Don’t do business with a company that cannot provide a physical address, and always verify that the address is legitimate before you proceed.

6. The lender pressures you to act immediately

Don’t fall for the urgency plea. One of the hallmarks of personal loan scams is giving you an immediate deadline to sign on for a loan because the offer expires quickly — like within a day.

Lenders that use such high-pressure tactics could be up to no good. It may be a ploy to get you to make a rash decision.

Takeaway: Avoid offers with immediate deadlines for you to make a choice. You should have days and possibly weeks to accept a loan offer.

7. The lender is not transparent about its fees

Scammers will avoid posting their fees prominently on their websites or disclosing them when asked. They may also tell you that you’ve been approved for a loan and then demand a fee from you upfront.

Hidden fees that are imposed after loan approval are a red flag. The FTC suggests that you walk away from any company that follows this practice, particularly if you’re told that the up-front money is for such things as “processing,” “insurance” or “paperwork.”

Takeaway: Legitimate lenders may charge application, credit report or appraisal fees, which you’ll be aware of before you complete an application since real lenders make you aware of these fees. If there are surprise fees you weren’t aware of, it could be a scam.

Common types of loan scams

Most types of loan scams seek to either extract money upfront or provide loan terms so unforgiving that borrowers will be subject to late fees or other charges. Some popular ones are:


  • Loan fee scam: Scammers may try to offer you a low-cost loan in exchange for hundreds or thousands of dollars of fees upfront. After receiving these fees, they will cut off contact without providing any funds.
  • No-credit-check scam: Some legitimate personal loan lenders consider more than your credit score when approving you for a loan, but some scammers promise funds without a credit check. This is a red flag since your credit history is a major factor in assessing how risky of a borrower you are.
  • Private student loan forgiveness scam: The federal government offers student loan forgiveness programs for federal student loans. If a company approaches you promising to forgive your private student loans, it’s likely a scam.
  • Debt consolidation scam: Debt consolidation can help you streamline the process of repaying your debt and can save you money in the long run. If a debt consolidation company is being pushy or tells you to cease contact with your creditors, chances are it’s trying to scam you.

Who is most at risk for a loan scam?

Scammers tend to target people who either are unsuspecting or may have trouble getting a loan through conventional means. Borrowers with a lot of debt, the elderly and people with bad credit are most at risk for these types of scams.No-credit-check loans, for instance, may be particularly attractive to people with poor credit, since bad-credit loans from reputable lenders may come with high interest rates.

If you fall into a high-risk category, stay vigilant about any company that advertises a loan product that seems too good to be true for your situation. If in doubt, check that the company is licensed in your state or contact your state’s attorney general.

What to do if you think you’ve been scammed

While no one wants to think that they’ve been a victim of fraud, it can and does happen. The good news is that there are several steps you can take if you’ve been targeted, like:


  • Gather your documentation. If you have emails, screenshots or other documentation that will help your case, gather them to present to authorities when it’s time to contact them.
  • Contact your local law enforcement. By filling out a police report, you’ll have an official record.
  • Contact agencies specializing in oversight. After calling law enforcement, it’s time to contact your state attorney general’s office, the FBI, the FTC and the Better Business Bureau. With this information, these agencies can better serve and protect other consumers.
  • Talk about it with family and friends. As scammers evolve their tactics, it’s important to help others stay informed.
  • Place a fraud alert with one of the major credit bureaus. If you place an alert with Equifax, Experian or TransUnion, the alert will be posted with all three. A fraud alert isn’t a credit freeze; instead, it lets creditors know you may be a victim of fraud and that they should contact you to verify your identity before issuing new credit.

How to spot a legitimate loan company

Even if you have below-average credit, plenty of companies offer legitimate loans. When searching for a good lender, start with these steps:


  • Check for contact information. A lender’s phone number, email address and physical address should be readily available on the website, even if it’s an online-only lender.
  • Investigate online reviews. Customers posting on Google and Yelp will have the best insight into the experience of working with a lender.
  • Look at the Better Business Bureau. The BBB is a good way to find out if a lender is trustworthy, and it’s also a source for customer reviews.
  • Make sure it’s registered. Legitimate lenders must register with state agencies before giving out loans. If you’re unsure if a lender is safe, contact your state’s attorney general.

The bottom line

If you need a personal loan, do your research and compare multiple lenders to make sure you’re getting a good rate from a trusted source. Even if you don’t have great credit, there are plenty of personal loan lenders that offer loans to borrowers in need regardless of credit status. Don’t be duped into falling for a scam and instead, find a company that’s willing to work with you were you are.

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Written by
Barry Bridges
Senior credit cards editor
Former Senior Editor Barry Bridges has been writing about credit cards, personal loans, mortgages and other personal finance products since 2017. Before joining Bankrate, he was an award-winning newspaper journalist in his native North Carolina.
Edited by
Loans Editor