Common Loan Scams – Don’t Fall for Them
Every day, savvy people fall for loan scams. In fact, according to the Federal Trade Commission FTC, people lose more than $2 billion annually when they fall for loan brokers with deals that are too good to be true.
Why does this happen to smart people? That’s because the scammers are so very crafty. They masquerade as legitimate personal loan lenders, but they are not. Loan scammers “hide in plain sight” and often use the same contact method that may be used by a legitimate lender.
How can you tell legitimate lenders from criminals? Read on.
What Is a Loan Scam?
By definition, a loan scam, as defined by the Federal Trade Commission, is a fraudulent financial transaction for a loan or product.
How to Identify a Loan Scam
Here’s a quick checklist you can use to ID personal loan scams:
- The lender or business has no physical address.
- The lender or business reaches out to you through social media messages or email, typically without your prior request.
- You’re asked to pay a fee upfront before receiving funds.
- The website for the “loan company” shows as “unsecured.”
- You haven’t asked for loan approval anywhere – the loan offer is a surprise.
- The lender doesn’t care about your credit history.
Be Aware of These Common Loan Scams
Now, we’ll get more specific about the most common loan scams. Remember that these techniques would not be used by any legitimate financial institutions.
Advance Fee Loan Scam
Advance fee loan scams are easy to spot. They all require an upfront fee or upfront payment for you to borrow money, sometimes called a processing fee or application fee. Don’t confuse that with a loan origination fee, which is a requirement for a mortgage loan from legitimate institutions. That loan origination fee becomes part of the loan. With advance fee scams, the upfront fees come out of your pocket before the loan money is on the way. The loan proceeds will never be on the way.
Payday Loans
Payday loans are frequently promoted through various advertisements. For instance, loan scam advertisements highlight a familiar issue: individuals struggling to make their pay last until the next payday. Concerned about poor credit? That’s not an obstacle! The scam company proposes to “lend” you an advance based on your upcoming paycheck. You will undergo an approval process, during which you provide all your relevant information. In essence, the scammer could gain access to details about your checking account. This scenario exemplifies a prevalent type of personal loan scam.
Government Grant and Loan Scam
These scams are commonly aimed at home improvement needs, such as new roofs or windows. The advertisement or scammer says that via a “government program,” certain homeowners are eligible for a special loan amount. The ad may say “state approved” or something similar. They’ll promise to deposit the money in your account – all they need is your bank account number.
Phishing Scams
The phishing scam includes a website that looks legitimate, but often shows as “unsecured.” Someone may even call you to “confirm the details” of your loan. What the scammer wants is information, such as your social security number and bank account information. A phisher who contacts you this way is called a predatory lender.
Fake Check Scams
Fake check scams are most often associated with either “work from home” jobs or “surprise” contest wins. In a common “work from home” scam, the fake check is to be cashed by you and used for office equipment or business supplies. You may get those items – but you’ll owe all the money for them. The “surprise” contest win is often a relatively small amount, such as a check for $5,000 for a “lottery” or other contest consolation prize.
You’ll have to provide your bank account information so the scammer can make a wire transfer. Or in lieu of a check or wire transfer, the scammer may use a prepaid debit card or another prepaid card. Yes, there’s money on the card – that’s because they don’t care about that money; they want the money in your account.
Government Imposter Scams
The FTC lists the government imposter as the most often used scam. And most often, the scam appears to come from the IRS. You’ll be pushed to make payments immediately or risk jail time.
Debt Settlement Scams
This is a cruel scam that targets individuals who already have bad credit or are facing financial difficulties. The scammer’s proposition is that you’ll achieve debt relief by merging all your loans into a single lump sum loan. They will present information indicating that your monthly payments will decrease, for instance, from $400 a month to $200 a month. Sadly, the loan’s terms will span a significant period. Overall, due to the high interest rates often associated with these loan scams, you’ll end up repaying considerably more money.
No Credit Check Personal Loans
No reputable lending institution will approve a loan without first reviewing your personal financial history and obtaining your credit report. This loan scam resembles a personal loan scam akin to debt settlement, as it typically involves longer terms and higher interest rates. In many cases, there is not actually a loan provided; rather, it serves as a method to collect your personal information.
How to Avoid a Scam Loan or Credit Card
Here’s how to determine whether or not entities are legitimate lenders:
1. Check to see if the lender has a listing with the Better Business Bureau and/or the Consumer Financial Protection Bureau or major credit bureaus.
2. Avoid engaging with any lender that lacks a secure website, as these are likely fraudulent businesses. As a general rule for online security, steer clear of such sites.
3. Don’t click on links from popups or emails.
4. Make sure lenders are registered in your state, as they are required to do.
5. Always work with a reputable lender who requires credit reports. Reputable lenders conduct credit checks before making financial decisions.
6. If contact comes out of the left field via email or social media, that’s a potential loan scam. Hit your delete button.
7. Before signing up for a loan, make sure you receive a clear, written breakdown of all fees, costs, and interest involved. There should be absolutely no hidden fees.
Do Loan Companies Ask for Money Upfront?
No. When you deal with reputable lenders, they will not ask you to pay upfront money that comes out of your pocket. Any request for upfront money should serve as a fraud alert.
Will a Loan Company Ask for Online Banking Details?
No. Legitimate loan companies will not ask for online banking details.
Can You Get Out of a Loan Scam?
You’d wish they’d have to face legal consequences but it can be difficult to track down the scammer. Act immediately. Of course, make a police report. Also, contact the Federal Trade Commission and your state Attorney General’s office.
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