8 Signs of Personal Loan Scams

With billions of dollars lost to consumer fraud every year, recognizing signs of personal loan scams — such as guaranteed approvals and upfront fees — is increasingly important. Fraud isn't limited to banking and investing. If you're trying to borrow money, you should also be aware of personal loan scams.

Knowing the warning signs of personal loan fraud can help you tell the difference between scams and legitimate loan offers.

Signs of personal loan scams

When shopping for personal loans or reviewing loan offers, keep an eye out for the following red flags. These signs can alert you to potential personal loan fraud:

1. The lender offers guaranteed approval

Legitimate lenders don't guarantee loan approval. They need to review your application, financial circumstances, and credit history before deciding whether to approve your loan.

Personal loan scammers, however, may target bad-credit borrowers who've struggled to get approval from other lenders. If a lender offers guaranteed approval, especially after you've been denied by other lenders, consider it a red flag.

2. The lender makes unsolicited contact

If you receive a text, email, or phone call from a lender you haven't previously contacted, the Federal Trade Commission says you shouldn't respond.

While it's not uncommon to receive preapproved offers from a bank or credit union you already work with, make sure the email or phone call is not impersonating a bank or lender and phishing for your personal information. Contact the bank directly via the number directly on your bank statements or its website.

3. The lender requests upfront fees before approval

If a lender is requesting upfront fees as a condition of approving the loan, your guard should be up. While some legitimate lenders may charge a one-time origination fee — which covers the administrative costs of processing the loan — it's typically deducted from the loan funds after you've been approved.

For example, if a lender charges a 5% origination fee and you borrow $10,000, you'd receive a disbursement of $9,500 ($10,000 minus the 5% or $500 origination fee).

Scammers may request that you pay a fee upfront rather than deducting it from the loan proceeds. This is because there is no loan; once they receive the money from your upfront payment, they'll disappear.

4. The lender pressures you to act immediately

Pressure to act quickly is never a good sign when it comes to financial products and services. If a lender urges you to act fast, the loan in question might be a scam.

Legitimate lenders may offer limited-time promotions, but urging you to take immediate action signals a potential personal loan scam.

5. The lender lacks clear contact information

Legitimate lenders make it easy for you to get in touch with them. Scammers, on the other hand, may not provide clear contact information.

When vetting lenders, make sure they provide contact information, like a phone number and valid email address. If you can't find this information, the lender may not be trustworthy.

6. The lender has no physical address

Similar to providing contact information, legitimate lenders — including online lenders — have a physical address. Generally, this should be easy to find on a lender's website.

Fraudulent lenders may not list a physical address or any address at all. If you can't find a physical address associated with a lender, avoid them.

7. The lender isn't registered or licensed in your state

Lenders generally have to be registered or licensed in states where they operate. When you're researching a lender, make sure they're registered in the state where you live. To do so, check with your state's bank regulator — which you can find on the Consumer Financial Protection Bureau's (CFPB's) website. If you can't find a license for a particular lender, apply for a loan elsewhere.

8. The lender has an unsafe or unsecure website

Unsafe or unsecure lender websites should be a big red flag. Site security is constantly evolving, so check what the latest protocol is for your browser. For example, Chrome and Android operating systems use the following icons to indicate the level of security (or not):

Also, check to make sure the URL matches the company's name. Misspellings or variations of the company name may point to fraud.

What to do if you think you're being scammed

If you think you're a victim of a personal loan scam, take the following steps to protect yourself and report the incident:

1. Notify your bank or credit card company: If you've sent money to a potential scammer, such as in an advance-fee loan scam, notify the financial institution from which you sent the money as soon as possible.
2. Compile any documentation of the incident: Calls, emails, texts, and any other communication with the scammer may be useful when reporting the fraud. Keep any documentation related to the incident, and have it ready when filing reports.
3. File a police report: Contact your local police department to file a report of the incident.
4. Report the scam to the FTC and CFPB: Doing so can help others avoid similar scams in the future.
5. Keep an eye on your credit report: If a scammer gets hold of your personal information, they may attempt to open new accounts in your name. Access free copies of your credit report at AnnualCreditReport.com and review them regularly for unfamiliar activity.

How to find a legitimate lender

Scammers are constantly coming up with new ways to commit fraud, but there are several ways you can protect yourself from a wide variety of scams. The following tips can help:

• Look for a lender's credentials, licenses, and contact information: A lender's website should make it easy for you to verify its legitimacy. Look for clear contact information, a physical address, and proof of licensure in the state where you live.
• Search online for reports of scams: Search online or use the CFPB's Consumer Complaint Database for evidence of fraudulent behavior associated with a particular lender.
• Check third-party review sites: Sites including the Better Business Bureau (BBB) and Trustpilot offer reviews and ratings from previous customers. If people have had issues with lenders, you'll likely find mention of it on these sites.
• Consider a lender's approval process: Make sure a potential lender considers your financial information, including your credit history and income, before approving your application. Lenders that guarantee approval without reviewing this information are likely scammers.
• Borrow from a financial institution you already work with: Don't overlook banks or credit unions where you're already a customer. If these institutions offer competitive rates and you're satisfied with your previous experience as a customer, borrowing from them can be a simple and safe choice. Plus, you don't have to worry about vetting them as a potential scammer.

Compare legitimate loan companies

If you decide to get a personal loan, it's essential to make sure that the loan companies you're considering are legitimate.