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Loan scams and how to avoid them
Not sure if your lender's legit? Here's 10 tips on how to protect yourself.
If you don’t like your bank’s terms or have bad credit, an online lender might cater to your specific needs. But it can be harder to tell a loan scam from a legit offer. Know what red flags to look out for and compare lenders before making a decision.
Loan scam red flags
1. No credit check required.
Most legitimate lenders will check your credit to determine if you’re able to repay them. Be wary if a lender isn’t interested in seeing your credit score. Loan scammers typically don’t care about your creditworthiness because they are after your personal information.
2. The lender isn’t licensed by the Ministry of Law.
The Singapore government requires lenders to register for a license. If you find a business that isn’t licensed to operate in Singapore — don’t respond to its lending inquiries. You might have stumbled on a fraudulent website. Licensed moneylenders generally state their license number on their websites. You can always fact-check this information by looking for your lender on the Ministry of Law’s Registry of Moneylenders website.
3. Your loan offer is incomplete or unlawful.
The Moneylenders Act requires all lenders to provide the complete terms of a loan, including the final cost of the principal plus interest in a legal contract. If your offer lacks details, contains spelling or grammar errors or otherwise raises an eyebrow, it could be a loan scam. More importantly, your loan offer should not charge a monthly interest rate above 4% and should not allow you to borrow more than your income. Specifically, the maximum amount of your monthly income that can go towards loan repayments is 60%. These are lending terms stipulated by the Singapore government.
4. You can’t find a physical address or contact details.
If a lender doesn’t provide a physical address or contact information, put the brakes on your loan. Loan scammers make it difficult to get in touch, thus evading 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 loan scam. Legitimate lenders offer steady rates that depend on your credit. Pressure tactics are designed to drive you to act quickly, before you’re able to spot a loan scam in progress.
6. The loan requires payment up-front or has “high processing fees”.
Loans demanding “processing,” “insurance” or even “origination” fees before approval are probably scams. A lender asking for payment before it’s processed your application is likely a scammer looking for a quick buck. Additionally, you should note that processing fees are legally restricted to 10% of the loan amount, and late payment fees should not be more than $60.
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. Asks for payment in the form 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 legitimate lender 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.
9. You’re receiving unsolicited offers.
Personal loan scammers could mail you unsolicited offers, or sometimes reach out to you via text messages. Always check these offers for red flags, including deals that sound too good to be true. Most importantly, legit money lending companies are not allowed to advertise via informal platforms such as SMS, WhatsApp or flyers.
10. The loan application website is not secure.
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.
5 factors to look for in a legit lender
Considering the red flags above, here’s a quick checklist you should consult before deciding on your lender.
- My lender is easy to contact and has an accurate physical address.
- The appropriate credit information has been requested from me.
- I’m confident that the application website is secure.
- My loan terms are clear.
- There are positive and legitimate reviews of the lender online.
Compare personal loans from legit lenders we’ve reviewed
The most common loan scams and how to avoid them
Here’s how to protect yourself from two common loan scams you might encounter when applying for a loan.
In a typical phishing scam, you visit a site 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 loan scam is successful, you’re tricked into providing your NRIC, SingPass details, bank account numbers or passwords, which a scammer then uses to steal your money or identity.
How to avoid being “phished”
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 be owned by a loan scammer.
Advance-fee loan scams
These simpler loan scams are sometimes combined with phishing scams. In this case, you apply for a personal loan with a fraudulent lender that asks you to pay a fee to cover processing costs, insures your loan or guarantees approval before processing your application. You’re often asked to pay with a wire transfer or prepaid debit card — payments that aren’t traceable, making for an easier getaway.
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 a processing fee for their loans, but these fees are typically deducted from your total loan amount.
Loan scammers put a lot of work into gaining your trust so that you click, share or open what they’re pedalling. Which means that real loans are increasingly hard to tell from the fakes. In the end, knowledge is the best defence against personal loan scams.
To find a personal loan from a trustworthy company, you can compare fees, rates and terms of legit lenders we’ve reviewed.
Frequently asked questions about loan scams
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