How to spot personal loan fraud

Interest in personal loans is rising this year, industry experts say.

Unfortunately, potential scams are also increasing.

In the midst of record-breaking unemployment rates and a overwhelming economy, consumers seek personal loans for two main reasons: to consolidate credit card debt or just to make ends meet, says Brian Walsh, CFP and senior manager of financial planning at SoFi, a national private finance institution and credit institution.

“This is a way to take them through until they’re back to normal,” says Walsh.

Fraudsters have been noticed. In the first four months of 2020, the Federal Trade Commission (FTC) reported more than 18,000 accounts and more than $ 13.4 million in losses from COVID-related fraud. These complaints encompass a range of financial frauds. But personal loan fraud was a problem even before COVID. Last year, the Insurance Information Institute, a trade group, received nearly 44,000 reports of potential personal and business loan fraud.

“Unscrupulous people will try to take advantage of people’s needs,” says Walsh. And in the midst of a pandemic that is wreaking havoc on the economy, these unsavory people find plenty of opportunity.

Once you’ve determined that a personal loan makes sense for you, the next step is to investigate warning signs and warning signs of personal loan fraud.

Personal Loan Fraud Warning Sign

“Basically, there are two main reasons you can be scammed: people are either trying to steal your money or they are trying to steal your personal information – and maybe sell it,” said Jamie Young, Senior Editor at and online loan marketplace.

Here are some warning signs to look out for.

To be too good to be true

“If it sounds too good to be true, it most likely it is,” says Walsh. In fact, all of the experts we spoke to confirmed this opinion. They agreed that if a lender has guaranteed quick loan approval, only has rave reviews on their own website, doesn’t care about bad credit, or doesn’t offer credit screening at all, it would be wise to do a lot of research before agreeing anything.

This may include reaching out to you. “It is not uncommon for banks to send you letters of offer in the mail. But if it’s a bank you’ve never heard of and who happens to come to you with a deal that seems a little too good to be true, you should proceed with caution, ”says Farnoosh Torabi, contributing editor of NextAdvisor and host of So Geld podcast.

Bad Credit? no problem

Pre-approvals, guaranteed approvals, or no credit checks seem to be common issues with personal loan fraud. If the lender makes guarantees before checking your financial history, be careful. Guaranteed approvals or no credit checks are possible scams. “A lender needs to do some sort of underwriting to adequately rate and rate the loan. If they don’t, that’s a red flag for me, ”says Walsh.

Advance payment

All of the experts we spoke to said they were careful about advance fraud.

“Some personal loans require you to pay for an application or the commitment fee, but that comes from the loan,” says Walsh. In other words, any fees associated with the loan should be covered by the loan itself. If you need money out of your pocket, get away.

Pro tip

Your state’s finance department should keep a register of approved lenders. Check it.

These fees are often phrased using legitimate terms such as “application fee” or “processing fee”. However, these fees are far from legitimate and often require things that may seem strange, like buying a prepaid card, says Anuj Nayar, financial health officer at LendingClub.

“Legitimate personal lenders charge up front. It’s known as the borrowing fee, and that’s normal – but it’s deducted from your loan proceeds, ”says Young. On the other hand, she says, “advance loans are not legitimate. You should never give your money to anyone before you have been approved. “

Lack of company information

Another big warning of potential loan fraud is a lack of information about the lender. Legitimate financial institutions usually have an address and extensive contact information on their website. If your lender has no information about their business other than a URL, you should do additional research before giving them any personal information.

Printing tactics

Finally, if a lender ever presses, don’t bow down. “Nobody’s going to pressure you if they’re a legitimate lender,” says Young.

“Make sure today that you aren’t pressuring yourself to make a decision or give out personal information like bank account number, social security number, or credit or debit card information,” says Nayar. Reputable institutions will not force you or rush the personal loan application process.

How to check out loan providers

Make sure the website is safe

Check the company’s website URL to see if it is using HTTPS. The S stands for safe. HTTP (without S) is not a secure website for collecting personal information. You want to make sure the website is secure because you are providing personal information, says Young.

Look at her

A reputable financial institution should have information about themselves online. “If you can’t find information about this company or product, go away,” says Torabi. She recommends doing a Google search on the institution name and the word “scam” to see what comes out.

Read reviews

“Do some internet detective work,” says Young. And Walsh agrees. “Whenever you buy a financial product, you should read reviews and browse around as much as you can,” he advises. Search the reviews to make sure other consumers have not been mistreated by a lender you are considering. You can take a look at the Better Business Bureau and google “Reviews for Company X,” suggests Young.

Ignore the fishy offers

As our experts pointed out, you may receive offers that sound too good to be true. Ignore them. Don’t fall into the trap of big promises of waived credit checks and guarantees for a fee.

Veterinarian through official tools

Government resources are free and “there to help consumers avoid being exploited,” says Walsh. You can check your prospective lender through one of these websites by typing the company’s name in the search bar. If they are charged, one of these sites will report on them.

Experts recommend:

the Federal Trade Commission (FTC)

Consumer Finance Bureau (CFPB)

US Public Interest Research Group (PIRG)

The American Bankers Association (ABA)

Check your state’s registry resources

Your state’s finance department should keep a register of approved lenders. “Personal loans are all about verifying the institution and making sure it’s registered,” explains Torabi. State resources vary; some states issue licenses to lenders; others register them. Take a look at your state’s system and make sure the lender you are considering is checking out. For example, I looked for “New York State Licensed Lenders” and reached the New York State Department of Finance. Here you can search for information on licensed lenders in New York.

Shop and compare prices.

Compare the interest rates with some lenders to make sure you are getting the loan money you need at the lowest interest rate. “With every product you buy, you buy around. Don’t limit yourself to this one offer, ”says Torabi.

The bottom line

Reviewing a financial institution you are considering will not only protect you from personal loan fraud, but it can also help you get the lowest possible interest rate.

Look out for lenders who will ask for cash upfront or who will pressure you, especially if you can’t find a lot of information on their business. When in doubt, it’s worth reaching out to a lender you know you can trust.