You look at the bills and realize it’s time to make your car and mortgage payments, but your bank account is empty. The urgency of these situations may lead you to search for a personal loan. If you get a loan scam, then it can wreak havoc on your financial health.
The right loan can help you pay off your debt and buy time until you replenish your bank account. That’s why we created this guide to help you through this tough situation. Keep reading to learn how to spot and avoid personal loan scams.
What Are Loan Scams?
A loan scam is a fraudulent scheme where a supposed lender offers a loan under false pretenses. The primary goals of a loan scam may include:
- Obtaining personally identifiable information
- Getting financial details
- Gaining permission to access personal accounts
- Getting legal ownership of property
- Imposing high-interest rates or hidden fees
They may promise favorable terms that are too good to be true. Their motive is to conceal the loan’s actual cost. Scammers can appear legitimate by using fake company logos or false caller IDs.
Loan Scams: Red Flags to Look Out For
Loan scams can appear in many forms, often employing similar deceptive tactics. Recognizing these tactics is the first step toward avoiding loan fraud. Here are some red flags that stand out:
- High-pressure tactics to create urgency
- Guaranteed approval without requirements
- Promise debt cancellation
Moreover, be wary of companies asking for upfront payment before providing services. They may also demand payment through untraceable methods like cryptocurrency. Unsolicited offers made over the phone should also raise alarm bells.
High-Risk Loans to Avoid
While not scams, some loan types pose significant risks and should be avoided. These include:
- Payday loans
- Cash advance loans
- 401(K) loans
- Title loans
- Buy-here-pay-here auto loans
- Pawn shop loans
For example, payday and cash advance loans are notorious debt traps. They carry high-interest rates that are unreasonable. Title loans can risk the loss of valuable property, such as your car or home.
Meanwhile, 401(K) loans may seem harmless, but they turn your savings into debt. It also has potential tax implications and the risk of full repayment if you leave your job.
Steps to Take If You’ve Fallen Victim to a Loan Scam
Contact the firms involved, like your credit card company or bank, and inform them of the scam. Next, file a police report and track your credit report for unauthorized activity.
Place a fraud alert on your credit report if your personal information has been compromised. Report the incident to the Federal Trade Commission (FTC). This can aid in tracking and investigating such scams.
How to Identify a Legitimate Personal Loan Lender
Trustworthy lenders have positive Better Business Bureau (BBB) reports and excellent online reviews. Look for businesses that maintain professional communication. They should also have a verifiable website, phone number, and physical location.
Always verify this information before clicking on any links in an email or text message. Scrutinize any online loan offers, especially if they seem too good to be true.
Recognizing Different Types of Loan Scams
Loan scams are not monolithic; they come in a variety of forms. Understanding these variations is vital to recognize and avoid falling into fraudulent activities. Here are some loan scams to stay away from:
Advance-Fee Loan Scams
Advance-fee loan scams are when a scammer guarantees you’ll get a loan after you pay an upfront fee. This fee could be cloaked as a processing fee, an insurance fee, or even a first month’s payment. However, once you’ve paid, the promised loan never materializes.
Legitimate personal loan lenders do not ask for fees upfront. They are typically deducted from the loan amount or factored into the payments.
Bad Credit Loan Scams
In a bad credit loan scam, lenders guarantee approval of a loan without a credit check. This preys on those who struggle with bad credit and are desperate for a loan.
Real lenders always check your credit report before offering you a loan. This is part of the personal loan requirements. If you encounter a lender that doesn’t have these requirements, be wary, as it’s likely a scam.
Loan Phishing Scams
Loan phishing scams use an online loan as bait to steal your personal information. These scams usually involve unsolicited emails or text messages. It can also direct you to a fake website.
This is where you’re asked to enter personal information. They aim to grab your Social Security number, bank account number, or credit card information. To avoid phishing scams, never provide personal information to unsolicited requests.
Peer-to-Peer Loan Scams
Peer-to-peer loan scams exploit online platforms where borrowers can get a loan from an individual or group. Scammers pose as lenders on these platforms and ask for an upfront fee before the loan can be disbursed. Always do your due diligence before engaging with lenders on peer-to-peer platforms.
Protecting Yourself from Loan Scams
You can take several steps to protect yourself from loan scams. Here’s what you can do:
Do Your Research on the Lender
Check their reputation with the Better Business Bureau and look for online reviews. Be cautious of lenders who contact you out of the blue. Legitimate lenders typically don’t use aggressive marketing tactics.
Read the Terms and Conditions
Those are usually very long and annoying but don’t ignore them. It could be a scam if you see hidden fees or unclear working in the document.
Third, avoid lenders who guarantee approval without a credit check. Run the other away if they ask for an upfront fee.
Protect Your Personal Information
Never give out your Social Security number or credit card information. Only do this if you’re certain the lender is legitimate.
Stay Vigilant and Informed
Loan scams are pervasive, and the best defense is staying informed. You can safeguard your financial future by recognizing the red flags. You can learn the types of loans to avoid and understand how to verify the legitimacy of a lender.
Always remember that if a loan offer seems too good to be true, it likely is. Maintain a healthy skepticism, especially with unsolicited offers. Your financial well-being is worth the extra effort, so feel free to contact us to get a legitimate loan online.