3 Common Loan Scams and How to Avoid Them
Common sense might seem like a reliable defense against scammers, but the truth is that today’s fraudsters are constantly refining their tactics. And now that financial transactions are often completed online, loan scammers have a new avenue to take advantage of borrowers.
To protect yourself, it’s important to stay informed and cautious. Let’s break down what a loan scam is, popular types of loan scams, and how to identify and avoid them.
What Are Loan Scams?
Loan scams involve deceiving borrowers into believing they are getting a legitimate loan when, in fact, they are being tricked into giving away money or sensitive information. Their end goal is to obtain personally identifiable information (PII) and/or financial information. Scammers may ask for your Social Security number (SSN), credit card number, bank passwords and other sensitive information.
Now, let’s look into different types of loan scams and how to spot them.
Common Loan Scams
1. Fake Companies Pretending to Be Your Lender
Scammers often pose as legitimate lenders to trick borrowers. They can impersonate a legitimate loan company or financial institution using fake logos, websites and caller ID numbers. Always check the email address of lenders — be wary of emails from non-official domains.
2. Unsolicited Loan Offers
Beware of random calls, fake approval letters, emails or requests for payment to process a loan. These are classic red flags of a loan scam. A legitimate lender will not ask for upfront fees before signing a contract, nor will they demand payment through unconventional methods like gift cards or cryptocurrency.
3. “Too-Good-to-Be-True” Social Media Posts
Scammers use social media to promote fraudulent loan offers. They may ask you to contact someone via personal email or social media to apply for a loan. Always remember, if an offer sounds too good to be true, it probably is.
How to Spot a Loan Scam
Guaranteed approval. Real lenders have criteria for eligibility, such as a minimum credit score or evidence of income, among other requirements. No reputable lender can guarantee loan approval. Although loans exist for people with less-than-perfect credit, you should be wary of lenders promoting guaranteed approval.
Upfront payment demands. A legitimate lender will never ask you for money up front to submit an application. Asking for payment before signing any documents is a major red flag.
Unconventional payment methods. Scammers often prefer gift cards, prepaid cards or cryptocurrency because they are hard to trace.
Robocalls or text offers. Legitimate lenders do not solicit loans through calls or text messages. If you receive one of these calls, just hang up. Responding indicates to scammers that you’re reachable.
Pressure tactics. Scammers often urge immediate action to prevent you from thinking things through. They may create a false sense of urgency through “limited-time offers.” They’re not above using emotional manipulation, threats or intimidation to rush you into accepting fraudulent loan offers.
Poor online reputation. A quick online search can reveal if a loan issuer has a bad reputation. Look up the lender on the Better Business Bureau and read reviews.
Overly attractive offers. Scammers may present financial services like debt relief, debt consolidation and student loan forgiveness. Or, they may offer you unbelievably low interest rates and repayment terms. While they may sound exciting, always second guess these overly attractive offers.
Requesting personal information over the phone. Never give out sensitive information unless you initiated the contact.
Tips to Avoid Loan Scams
Protect personal information. Don’t share personal data unless you’re sure of the lender’s legitimacy. especially if someone is calling you
Use verified contact information. Always use phone numbers or contact information from the lender’s official website.
What Do You Do If You’re a Victim of a Loan Scam?
File a police report. It’s important to contact law enforcement so that the scam can be documented.
Report to the Federal Trade Commission. The FTC can help deal with loan scams. Reporting fraud helps the FTC keep tabs on loan scams. Once you file your report, you can also receive tailored advice on how to respond.
Contact your state’s attorney general. These regulators can provide guidance on state-specific fraud cases.
Alert your bank. If any bank account or credit card information was shared, inform your bank immediately. They may be able to put a hold on your account.
Watch your credit. If a scammer gets your personal or financial details, they might try to use your credit or open new accounts pretending to be you. Check your free credit reports for any signs of things you didn’t do. In addition to conducting regular credit checks, you can also reach out to any of the big three credit bureaus and ask them to put a fraud alert on your credit reports.
The Bottom Line
Loan scams can pose significant risks to personal finance and credit history. Being aware of the warning signs and investigating further is key to protecting yourself. Remember, in financial matters, it’s always better to be safe than sorry.
DISCLAIMER: This content is for informational purposes only, and is not intended as financial, investment or legal advice.