Do you need a personal loan? If you do, then you are probably in a difficult place financially. Do not let this financial stress make you act desperate. Make sure you take the time to do the research on different lenders. Do not just find the right lender for you but also to reduce your risk of falling for personal loan scams. In order to recognize and avoid personal loan scams, you might have to make more of an effort. However, in the end it will be worth it to recognize and avoid personal loan scams.
The time you spend to recognize and avoid personal loan scams now will save you even more. Either is it time, energy or money in the long run. There are many helpful tips below on how to recognize and avoid personal loan scams.
Ways to Recognize Personal Loan Scams
There are many ways to recognize and avoid personal loan scams. In order to complete personal loan shopping without scams, you first have to recognize the signs that a personal loan seems fishy. Like something is just not right. Below are a list of helpful clues that you are in the midst of a personal loan scam:
1. The Lender isn’t Registered with the State
At the very minimum, lenders will need to register with the state. In order for the government to have oversight, they need to be notified when people set up business as lenders.
The specific rules will vary by state, but any business which is offering personal loans must be licensed. Not only that, but the lender must be licensed in your state. It isn’t enough that the lender is licensed in a different state. Because the rules are different in different jurisdictions. Lenders must be licensed in each state to ensure they are following the rules in that location.
There is another possibility if a potential lender from another state is trying to get you to take out a loan through their company. There might be fraud involved, and the website might be an illegitimate company using a real company’s name. If you are ever unsure, you can contact the licensing authorities and check up on a lender.
2. Upfront Fees Before You Get A Loan
No legitimate lender will approve you for a loan and then contact you demanding you pay them before you can get your money. This is a common method used by some scammers. They will tell you that the fees are for processing or for other kinds of fees.
A legitimate lender might charge you various personal loan fees as part of your loan. However, those fees will be consolidated into the cost of the loan. If a lender says you have to pay for a credit check or anything else before you can get the loan, move on to a different lender. Lenders who ask for fees up front are almost always trying to scam you. If you want to avoid personal installment loans scam, stay away from anyone demanding fees upfront.
3. They Use Words Like “Guaranteed”
In the real world, nothing is guaranteed. This is especially true when it comes to loans. If you have taken out a loan before, you remember that you filled out an application. Then the lender ran a credit check on you. Once they got your credit history, they could decide. Not just how much you might be able to borrow but what kind of interest rate you qualified for.
Lenders who try to make a loan sounds like it’s guaranteed are trying to get you off your guard. Especially if you have poor credit. You may be more willing to ignore the warning signs and try to get a loan through a company which is making a guarantee that you qualify. Unfortunately, the guarantee is almost a sure sign that the person promising you a loan is just trying to rip you off.
4. No Physical Address or Unclear “About Us” Section
This is another clear sign of a scam. An aboveboard business will give you clear contact information, including a physical address and phone number. You can even use Google maps and other online tools to verify some of the information provided. Many lenders will also give the information about the leaders in the organization, with short bios you can verify. A legitimate business will want to share that kind of information, so that the principals can get more exposure and the customers can get to know them better.
Someone trying to scam you will give out as little real information as possible. The reason here is obvious: the less you know, the harder it will be to find them later. When you have a problem, their website might be gone. This also makes it easy for them to hide from the authorities.
5. Misspellings and Grammar Mistakes
Misspellings and grammar mistakes on communications which purport to be from a legitimate lender are an obvious sign of a scam. Spellcheck requires minimal effort, and any company which is trying to conduct business should at the very least use proper grammar.
These poorly worded and poorly constructed attempts at getting you to comply are usually associated with overseas phishing scams. You can also look for other superficial clues like incorrect logos or imaging. If it doesn’t look right or feel right, it is probably not legitimate.
6. Unsolicited “Phishing” Loan Offers
“Phishing” is the term used to describe the fraudulent practice of sending emails to usually random email addresses while pretending to be someone else in order to get people to reveal personal, confidential information like bank account information and credit card numbers. One popular phishing technique is to pretend to be from a bank or other reputable institution.
You should always be wary of any offers which are unsolicited, and if you decide to follow up on such an offer, you should verify in a different way that the offer is legitimate. For instance, you can call the bank and ask if the offer was really sent to you. There should be a record when there is a concerted effort from an organization trying to get new business.
The kinds of information they will try to get include your date of birth, your social security number, and other unique identifiers. This kind of information can be used against you directly, and it can even be sold to other unethical people who collect it. Most lenders will not try to offer you a loan until you have expressed some sort of interest on your own.
This kind of scam is difficult for some people to say no to because the original message is often designed to make the reader feel as though he or she has stumbled upon a marvelous opportunity. The rule applies that if it seems too good to be true, it probably is. This is one obvious way to avoid personal loan scams
7. The Lender Isn’t Interested in Your Payment or Credit History
This goes along with the earlier point where people claiming to be lenders might say their loans are guaranteed. Lending is a business, and there are valid reasons lenders examine your credit history before deciding how much money they can lend you. If you turn out to be a poor credit risk, the lender will lose its money and not be able to make it back.
A credit score indicates how you have acted in the past when it comes to paying your bills. If you have a long history of paying all your bills on time, you will have a high credit score. If you have no history or a history of not paying or of paying late, your score will be lower. There are things you can do to improve your score, even if you have not always done everything right in the past.
The only reason a lender wouldn’t care about your credit history is if the lender is not really legitimate. The most likely scenario here is that the person purporting to be a lender is really just trying to get your personal information, and offering an enticement by saying that even people with poor history can feel confident when filling out an application.
Ways to Avoid Personal Loan Scams
Applying for a loan with a company which is attempting to scam you is worse than not applying at all. The repercussions could follow you for years if you give your information to the wrong group or individual. There are, fortunately, some steps you can take to avoid personal loan scams.
1. Research Lenders You Are Considering
This is probably the most important thing you can do to avoid personal loan scams, and it is worth doing well. Check out the website and see what kind of information is easily available. Is there an address? A phone number? Are they affiliated with other local groups or organizations?
Lenders must be licensed, and many have accreditation through organizations like the Better Business Bureau. Make sure to backtrack the information you find to see if it matches the information online, so you can make sure the website you are looking at isn’t just copying a real business.
You would never buy a car or a computer without comparing features and brands, and comparing lenders is probably more important in the long run. You should be able to find reviews and ratings online. Negative ratings don’t necessarily mean the lender is bad, but you should consider what kinds of criticisms the lender has received. The U.S. Consumer Financial Protection Bureau (CFPB) keeps a database of financial products.
2. Avoid Companies That Say They Are “Official Government” Approved
There aren’t really any lenders that are “government approved” in the way such an advertisement is trying to imply. If the lender is licensed, it will be allowed to conduct business. But calling something government approved is an attempt to give the lender a status that doesn’t really exist.
Along the same line, scammers will put other words like “federal” or “national” in the title. Still others use the name of a prominent bank but change it slightly, and even copy the logo. These are all signs that someone is trying to deceive you.
3. Search On the Company With the Better Business Bureau (BBB) and Check Out Their Online Reviews
The Better Business Bureau is a private, nonprofit organization that has been working for over 100 years to establish marketplace trust by providing a forum where businesses will be subject to customer reviews and complaints. Any business wishing to be a part of the BBB must pay a membership fee, and over 400,000 businesses in North America have earned their Better Business Bureau accreditation.
What makes the rating more reliable is that the BBB is not affiliated with any governmental agency and the process is designed to help businesses be self-regulating. Anyone who wishes to be accredited must provide basic information like size, start date, and several other factors. There are 8 Standards of Trust like honest advertisement, transparency and responsiveness.
If the lender you are considering is registered with the BBB, you can save yourself a lot of homework. Much of the information you should have before you agree to a loan will be available on the website. There will also be reviews by people who have actually used the services. Another great thing about checking out lenders on the BBB website is that you can find lenders that are accredited and have good reviews.
4. If Using a Lender Finder Service, Make Sure They Follow OLA Best Practice Guidelines
The Online Lenders Alliance is dedicated to providing a bridge between consumers and lenders by providing a framework of best practices that protect consumers using their online services. As part of their mission, they educate consumers about how to protect themselves when dealing with consumer loans. Some of the advice they give, for instance, is to
- never borrow more than you can afford
- don’t take out loans with more than one lender
- shop around for the best bargain and
- keep all your paperwork.
The industry best practices are for the lenders themselves and for lender finder services, and they provide guidelines that all online lenders should be following.
Lender Guidelines (Avoid Personal Loan Scams):
- Fully disclose all terms of the agreement upfront and make sure they are easy to understand.
- Provide a reasonable cancellation policy so consumers can back out if they want or need to.
- Follow all local and federal rules and regulations
- Never be abusive or deceptive. Always operate with a sense of fairness.
- Protect consumers’ personal data, including social security numbers, dates of birth, addresses, etc.
- Provide credit counseling and otherwise assist your clients when appropriate.
- Make sure you are following all advertising and marketing laws.
- Treat customers with respect.
Before finalizing a loan, become familiar with these standards and ask yourself if they are being followed in this situation. Lenders have an ethical responsibility to protect their customers. Any lenders who don’t take that responsibility seriously are not the kind you want to deal with.
What to Do If You’ve Been Scammed
Even if you are doing everything you can to be careful, you can still end up being the victim of a scam. There are people working hard day and night to try to take advantage of other people, and sometimes they break through our defenses. The federal government works hard every year to try to protect us, spending a great deal of money, and barely make a dent in the problem.
The first thing to do if you find out you are a victim is to report the scam. Most people never make a report, either because they don’t know how or they feel too embarrassed to admit they fell for the scam. Reporting is important because it helps law enforcement keep track of what kinds of scams are being run and how many people are affected. You probably won’t get your money back, but you are even less likely to if you don’t report it.
You can probably report directly to local law enforcement or the Attorney General of your state. There may be local consumer protection agencies, and you can report to the BBB. If you call for help, you should be directed to the appropriate places to report.
At that point, you might want to just wait and see what happens, but it is better to put it behind you. If the government agencies are able to track down the fraudsters, they still might not be able to get your money back. You can share your story to let other people know how to avoid a similar situation in the future and teach others the lessons you learned about the best ways to avoid becoming the victim of fraud. Your experience can teach others how to recognize and avoid personal loan scams themselves.
It is never too late to learn how to recognize and avoid personal loan scams, so do not despair if you have been made into a victim in the past. You shouldn’t beat yourself up; your example might even help others who were victims come forward.
Grace Douglas is a master candidate in international security management by day and a personal finance writer by night! With powers in finance, writing, and languages that she received by being exposed to high dosages of university courses and being bitten by booklice while working in a rare books library, Grace loves to use her powers for good rather than evil. If you need help with budgets or personal loan questions, then just call Grace, your friendly neighborhood FinanceWoman!