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5 Warning Signs of a Personal Loan Scams

Know the five warning signs of personal loan scams to avoid being a victim in this growing crime

Identity theft and personal loan scams are increasing as more of our lives go online. There’s big money in the billion-dollar personal loan business and even bigger money in stealing people’s banking information.

Apart from completely unplugging your world and living the hermit life in the back woods, the best way to avoid being a victim is to know some of the most common warning signs of personal loan scams. Scammers are quick to change up their tactics but five warning signs always seem to come out and give the fraud away.

Use these five personal loan scam warning signs to protect yourself and your money.

Personal Loan Scam Warning Sign #1: No Credit Check Loans

Online lenders are in the business of making loans and collecting interest when those loans are repaid. The only way they can even guess at whether a loan will be repaid is by looking at a borrower’s credit history.

Don’t believe any lender that says they have ‘breakthrough’ technology that can estimate your credit or the interest rate on your loan through other information like your answers to a survey or from social media.

Legit online loan companies will always want to do two checks on your credit report, a ‘soft’ inquiry and a ‘hard’ inquiry. The ‘soft’ inquiry is just to verify some of your application information and doesn’t go on your credit report. The ‘hard’ inquiry is done after you agree to the interest rate and before your loan is funded.

The only online loans that don’t require a credit check or where you credit score won’t matter are payday loans like Check into Cash. These loans are only for a week or two and rates are so high that the lender makes money even if a few loans default. I won’t say there’s no place for payday loans in your life, you might not have much of a choice if you have bad credit. Understand the few times when a payday loan is a better alternative and how to avoid the payday loan rate trap.

Personal Loan Scam Warning Sign #2: Upfront Fees or Loan Collateral

warning signs personal loan scams alertUpfront fees or loan collateral is the most common of personal loan scams. It used to be that scam lenders would ask you to wire an origination fee from your bank account for processing the loan. People got wise to this scam so now scam lenders are asking for debit card information to act as collateral on a personal loan. They say that they aren’t touching the money on the debit card but just want to know that there is money there for security on the loan.

Then they drain the debit card and you never hear from them again.

You might pay a fee for a personal loan but it will always come out of your loan when it is funded. If a company is so sure that it can get you a personal loan, why is it asking for money upfront or to be wired from your bank account. Better yet, go with a personal loan lender that doesn’t charge a loan origination fee like Avant Credit. Avoiding the origination fee, as high as 5% on other personal loan sites, can save you hundreds on your loan.

Personal Loan Scam Warning Sign #3: Unregistered Lenders in Your State

All personal loan companies and lenders must be registered in the states where they do business. Registration is usually done through the State Attorney General’s Office and helps the state monitor what financial promises are being made to the public.

Don’t believe a lender if they say they don’t need to register because they are totally online or because they are not a U.S. company. If they aren’t registered, they are either lending illegally or an outright scam.

It’s always a good idea to check your state’s Attorney General’s website for complaints on a lender anyway. Don’t blow this off, it only takes a few minutes which isn’t a lot of time when you’re talking about borrowing thousands of dollars.

Personal Loan Scam Warning Sign #4: No Physical Address

This personal loan scam warning sign isn’t quite as concrete as the others but it’s a good check and could save you when in doubt. Most lenders are going to have a corporate office building or at least a physical address. Even online lenders will have offices somewhere.

Check the lender’s address on Google Maps if you’re unsure about the company. I say this warning sign isn’t as definite because I’ve seen legit businesses where the address image on Google Maps was nothing more than an empty field. The warning sign isn’t perfect but be leery of PO box addresses or non-existent offices.

Personal Loan Scam Warning Sign #5: Emails out of Nowhere

It always amazes me how spam email catches so many people every year. Any stranger offering you a commission, bonus or any money in an email is 99.9% of the time a scam. Ask yourself, why are they contacting me and not someone with experience in this kind of thing.

These email scams happen in personal loans as well. You receive an email with a loan offer and a rate that is too good to turn down…along with a link where you can supply your personal information. If the scammer didn’t have malicious software in the link that hacks your computer then the information you provide is more than enough to steal your identity.

Never click on a link or open an attachment in an email that is from someone you don’t know, just don’t do it. It’s not a sweepstakes number or a hilarious cat picture, it’s a hacking scam to get your information.

What to do if you become the victim of a personal loan scam

If you are the victim of one of these personal loan scams, call your local police immediately to file a report. They likely won’t be able to do much if it’s an online lender but it will get the report filed and public and might help others in your area avoid the same scam.

Next, file a complaint with the Federal Trade Commission (FTC) Internet Crime Complaint Center.  Again, this isn’t so much to resolve the crime but to report it publicly and shut down the loan scammers.

personal loan scams contact complaints

You also need to contact each of the three credit rating agencies; Experian, Equifax and TransUnion. You need to notify them by phone and in writing that your personal information may have been stolen. This will help your case if any charges are made on your credit accounts or if your identity is used for new loans.

Finally, check your credit reports every few months after the incident or at least every year to make sure nothing is being added without your permission. Identity theft happens every two seconds in America and can cost you tens of thousands besides what it can do to your credit score and the rate you pay on loans. Creditrepair.com offers free credit consultation as well as monitoring and ways to improve your credit score.

Unfortunately, it seems personal loan scams and identity theft are on the rise and something we’re just going to have to try to avoid. The scammers are looking for easy targets so know the warning signs to a personal loan scam. Check out the legit personal loan sites in our list of lending sites including features and fees of each.

Joseph Hogue, CFAAbout Joseph Hogue

An investment analyst by profession, I run two blogs (Crowd101 and PeerFinance101) in personal finance, peer lending and crowdfunding. I've been on both sides of the table as a lender and a borrower and am excited to be a part of the peer movement. With the power of the internet, people are helping other people manage debt and raise money in ways never before possible.

A veteran and Iowa-native, I now live in Colombia with my wife and son. Like so many people, I was once trapped into the money myth and what it means to be successful. After taking control of my finances and learning how to make money in a job I love, I found a level of financial freedom that just has to be shared.

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