10 personal loan scams you need to know

The Federal Trade Commission (FTC) reported that consumers lost over $1.9 billion in 2019. Because it can be difficult to tell a scam from a legit offer, make sure you know the warning signs and common red flags of a scam. Like everyone says: If an offer too good to be true, then it's probably a scam.

What are personal loan scams?

A loan scam is a fraudulent offer for a personal loan. This is done either to gather information like your Social Security number or to convince you to pay for a product you won't receive. In general, loan scammers will present themselves like legitimate personal loan lenders. But certain clues, like a missing physical address, can be good ways to spot a fake loan.

Common personal loan scams

Phone calls and social media messages are common ways for a scammer to contact potential victims. If you're ever asked to pay a fee before receiving funds, enter personal information onto an unsecure website or offered a loan you didn't request, you might be facing a scam.

Advance fee scams

If a lender asks you to provide an upfront fee for any reason, put the brakes on your application. No legitimate lender will ask you to provide money at any point before it processes your application. Some lenders charge an origination fee for their loans, but this will be deducted from your loan amount before you receive your loan funds. An origination fee should never be paid out of pocket.

These simpler scams are sometimes combined with phishing scams. In this case, you apply for a personal loan with a fraudulent lender that asks for you to pay a fee to cover processing costs, insure your loan or even guarantee approval before the scammer will process your application.

You’re often asked to pay with a wire transfer or prepaid debit card — or any payment method that isn't traceable. This makes it almost impossible to get your money back.

Phishing scams

In a typical phishing scam, you visit a site or open a form that appears to be from a legitimate lender. You might even speak by phone with a caller claiming the need to confirm your loan details. In either case, if the scam is successful, you’re tricked into providing your Social Security number, bank account numbers or passwords, which a scammer then uses to steal your money or identity.

A key rule of thumb when applying for a loan online is to confirm that you’re on an encrypted page. Look for a padlock to the left of your page’s URL, which itself should start with “https,” indicating a secure site. If you don’t see either, the site you’re on may not be legit.

In general, avoid clicking links in any unsolicited email or popup window. If you don’t trust the source of an email or phone call, get in touch with the lender’s customer support directly to ask about the contact.

And if you can’t confirm a lender, an offer or even loan details, walk away and look elsewhere. Better to not have a loan than risk the potential of having your identity stolen and your bank account drained.

10 signs of a personal loan scam

Personal loan scams are designed to trick unsuspecting victims — but there are common ways to spot a scam. Make sure your lender is upfront. If you spot a red flag, don't give away your information or money.

1. No credit check
2. No state registration or license
3. Incomplete loan offer
4. Missing physical address
5. Offer requires you to act fast
6. Upfront payment
7. Guaranteed approval
8. Unsolicited contact
9. Lack of transparency
10. Pay by gift card, prepaid debit card or cash

1. No credit check required

Most legitimate lenders will perform a credit check to determine if you’re able to repay them. If a lender isn’t interested in seeing your credit score, be wary. A scammer typically doesn’t care about your creditworthiness because it’s after your personal information. And even if a credit check isn't required, your lender should at least request proof of income.

2. The lender isn’t registered in your state

The FTC requires lenders to register for a license in each state it offers loans in. If you find a business isn’t licensed to operate in your state — even if it’s licensed in other states — don’t respond to its lending inquiries. You might have stumbled on a fraudulent website using a business’s name to make money.

3. Your loan offer is incomplete

The Truth in Lending Act requires all lenders to provide the complete terms of a loan, including the final cost of the principal plus interest, before you sign on the dotted line. If your offer lacks details, contains spelling or grammar errors or otherwise raises an eyebrow, it could be a a sign of a potential scam.

4. You can’t find a physical address

If you can't find a physical address or contact information on the lender's website, put the brakes on your personal loan. Scammers make it difficult to get in touch later, thus avoiding any legal action you might want to pursue against them.

5. Your offer expires soon — and you must act now

If you’re faced with an urgent offer, you’ve likely found a scam. Legitimate lenders offer steady rates that depend on your credit score and finances. High-pressure sales tactics are designed to drive you to act quickly, often before you’re able to spot other red flags.

6. The loan requires payment up front

Loans demanding “processing,” “insurance” or even “origination” fees before approval are a scam. A lender asking for payment before it’s processed your application is a scammer looking for a quick buck.

7. You’re guaranteed approval

There’s no such thing as a guaranteed loan. For approval, a lender will typically check your credit and verify your information. Scammers lure you in with guaranteed approval so they can collect fraudulent upfront fees.

8. Contacts you out of the blue

Loan scams frequently show up on social media, in email and in your mailbox. There are some lenders that perform a soft credit check to see if you can prequalify for a loan. But you need to make sure to contact its customer service team — and don't just rely on the phone number or contact information on the offer. Do your own digging, and if you can't find it on the lender's website or its social media profiles, it's likely a scam.

9. No examples of fees, interest or costs

Scammers may build a realistic website designed to throw you off and submit your personal information on a fake loan application. But if a lender doesn't list its interest rates — or provide them over the phone when you call — and encourages you to submit for preapproval to find out, be wary. This isn't a red flag on its own, but combined with other warning signs, you might want to check out other loan companies instead.

10. Asks for payment in the form of a gift card

Paying a lender with a gift card is the same as paying with cash — once the money has been used, it’s nearly impossible to trace or get back. No will ask you to pay with a gift card, and if your lender is pressuring you to do so, you should find a new loan.

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

If you believe that you’re a victim of a personal loan scam, there are a few steps you can take to report the crime — but it may be difficult to get your money back.

• File a complaint with the FTC. While the FTC can’t resolve individual complaints, it can direct you to the proper bureau to file a complaint.
• File a report with your state attorney general's office. Your state attorney general's office keeps tabs on potential loan scams and works to build a case against scammers in your area.
• Call your local police. File a police report for the amount you’ve been defrauded.
• Contact the Internet Crime Complaint Center. This partnership of the FBI and National White Collar Crime Center is for victims of fraud that began with Internet contact.

How to find a legitimate personal loan

Use these tips before signing a contract to be sure you’re dealing with an upstanding business.

• Easy to contact. When you call or email a legit lender, you should be met with decent customer support that’s ready to answer your questions. The lender should also clearly display a physical location or P.O. Box and its state licensing information online.
• Secure website. Look for a little padlock to the left your address bar to confirm the site is safe. Most lenders encrypt the information you send to it online with 128-bit or 256-bit SSL. If a lender doesn’t, move on. A great offer isn’t worth risking your personal info.
• Runs a credit check. When you apply for a personal loan, a lender will pull your credit report to confirm you can repay a loan. Even if your lender works with bad credit, it should still perform this step to verify your identity and financial history.
• Clear loan terms. Your lender should provide a transparent contract that outlines the amount you're borrowing, the fees you’ll pay, any potential penalty fees, your interest rate, the total interest you’ll pay and the final cost of your loan. It should also detail when you pay and your payment options. If your contract is incomplete, don’t sign it.
• Reviews and ratings are available online. See what other people say about this lender. Loan companies frequently have pages on Trustpilot or the Better Business Bureau (BBB) website. Missing reviews — or highly negative reviews — can be a sign that you want to avoid the loan.
• No upfront fees. Personal loans never ask for money upfront. And while lenders may charge an origination fee, this should be deducted from the total loan amount before you borrow. Application fees and other charges are rare, so avoid them when you can.
• CFPB complaints. The Consumer Financial Protection Bureau (CFPB)’s complaint database is another place to search for warning signs. You can search for “complaint narratives” from current and former customers by company name or the date the CFPB received the complaint. You also might want to look into whether the CFPB has taken legal action against the lender in the past.

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Bottom line

Scammers may seem legit on the outside because they put a lot of work into gaining your trust. This means that real loans are increasingly hard to tell from the fakes. In the end, knowledge is the best defense against personal loan scams.

To find a personal loans from a trustworthy company, you can compare fees, rates and terms of legit lenders we’ve reviewed.

Frequently asked questions

Our answers to more questions you might have about personal loan scams.

I got a preapproved personal loan offer. Is it legit?

It could be. There are plenty of legitimate lenders that run your credit report and give you an estimated interest rate on a personal loan. We've collected tips to help you identify legit preapproval offers — but in general, only submit your information to websites you know are legit.

A lender asked for my banking information. Is this legit?

It depends. Many legitimate lenders request your bank account information to confirm your identity and deposit your loan. But if you suspect that a lender is illegitimate or conducting a scam, go with your gut. Avoid entering your bank account information online, choosing to call them directly instead.