Sometimes a personal loan can be a godsend when you need fast cash for things like a replacement tire, visits to the ER, or home improvement work. Unfortunately, fraudsters like to take advantage of this, as well.
Search for personal loans online and it’s possible you’ll run across a few loan scams. What’s worse is that it can be hard to distinguish these loan scams from legitimate offers. Even what looks like a financial review could serve as a disguise for loan scams.
The good news: there are plenty of telltale signs when it comes to loan scams and we’re about to show you how to spot the fakes.
Your payment history is ignored
“All credible lenders disclose, on their site or over the phone, that they will pull your credit report,” says Elie Seidman, chief revenue officer at BorrowersFirst, an online company offering personal loans.
A lender ignoring your payment history is one of the most obvious signs of a loan scam.
A lending institution wants to know whether you pay your bills on time and in full. It needs some assurance that you’ll repay what you borrow.
Data from a single credit bureau may not be enough. The lender might look at all 3 bureaus — Equifax, TransUnion and Experian. Seidman says the lending site should reveal all this upfront.
The lender isn’t registered in your state
According to the Federal Trade Commission, lenders and loan brokers must register in the states where they conduct business. If a lender you’re interest in does not list any states, you could be dealing with a loan scam.
Visit the lender’s website to verify a list of states where it legally conducts business. Short of finding any evidence of this, you could also contact your state attorney general’s office for further verification.
Seidman says authentic lenders also must operate under a bank charter and advises prospective borrowers to look for that information on the lenders’ sites. For example, BorrowersFirst works with Cross River Bank, a bank insured by the Federal Deposit Insurance Corp.
A prepaid debit card is required
Next on our list of potential signs of loan scams is the “upfront cost” of getting a loan.
You shouldn’t pay to get a personal loan. Yet, scammers ask borrowers to provide a prepaid debit card for insurance, collateral or fees, says Tom Bartholomy, president and CEO of the Better Business Bureau of the Southern Piedmont in North Carolina.
“Once that card is in their hands, it can’t be traced. So, if someone on the other end asks for a prepaid card, run the other way.”
Legitimate financial institutions may charge a fee for your application, appraisal or credit report, but those charges are deducted from your loan, Bartholomy says.
The lender’s website is not secure
When visiting a lender’s site, be on the lookout for two things:
- A padlock symbol on any pages where you’re asked to provide personal information.
- An “s” after “http” on the site address so it shows as “https://www…”
If the site address doesn’t show “https” at the beginning, back away from your device. That “s” means secure. Bartholomy says not having that “s” is a possible sign of a scam or at least an insecure website. Fraudsters refuse to pay to keep their sites safe.
In addition to a padlock symbol, you should also be wary of any warning messages that might pop up saying a site’s security certificate has expired. These should all serve as red flags for potential loan scams.
“A site that isn’t secure means the owner is up to no good,” Bartholomy says.
The lender has no physical address
Make sure the lender you’re interested in has provided a physical location. Even then, you will still want to plug that address into Google Maps.
Bartholomy shared an account where his Better Business Bureau office had a fraudster give a Charlotte, North Carolina, address that proved to be a vacant lot. Sometimes you need to actually see the location in order to verify it and that’s where Google Maps can help. If you don’t find any indication of their location, you should avoid the lender as this could be a loan scam waiting to happen.
For an additional check on the business’ authenticity, dial directory assistance and ask for the lender’s phone number.
The lender isn’t really a lender
Some websites appear to offer different types of personal loans but aren’t actually lenders, says Lauren Saunders, associate director of the National Consumer Law Center in Washington, D.C. Their goal is to sell your personal information to the highest bidder.
“The buyers could be loan companies but also might be scammers that will go after you for debts you don’t owe,” Saunders says. “Be very wary about entering your financial information on any website.”
According to the FTC, a direct lender lends you the money; a loan aggregator is a middleman — a company that collects your personal and financial information on a loan application and shops it around to lenders who might offer you a loan.
Loan aggregators can sell a potential borrower’s information including their name, address, phone number, birthdate, Social Security number, banking account, etc. As a result, not knowing the distinction between a direct lender and an aggregator can open you up to loan scams.
Some aggregators use keystroke loggers — software that records what you type. So even if you never hit “submit,” but fill out the application and then change your mind about applying for the loan, your information may be captured through keystroke logging, and sold or used for dishonest purposes, the FTC says.
You’re urged to act immediately
Don’t fall for the urgency plea. Bartholomy of the BBB of the Southern Piedmont says the criminals often give you a deadline and say their offer won’t exist tomorrow. That’s why they need your prepaid debit card today.
Stay far away from anyone who puts pressure on you to act now.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|