How to Protect Yourself from Personal Loan Scams

If you need some extra cash or want to pay off debt, taking out a personal loan can be a smart way to get the money you need. Personal loan interest rates can be lower than credit cards if you have decent credit and a personal loan can help you raise your credit score. In addition, there are dozens of online lenders to choose from, some of which offer an easy application process and funding in just one business day.

Along with the pros, of course, come cons. Personal loan scams are not uncommon, so it’s important to proceed with caution when vetting personal loan companies. Find out how to protect yourself from falling victim to fraud.

Warning signs of a personal loan scam

Is applying for a personal loan online safe?

What if you’ve been scammed?

Where to find the best personal loans online

Personal loan scams typically come with at least one red flag that should signal something isn’t right. Jeramy E. Genaway, a financial advisor from Pittsburgh, Penn., shared these six warning signs of a personal loan scam:

Traditionally, when you want a personal loan, you seek out a lender. Scammers, however, often turn the tables by approaching consumers with bogus offers.

“Oftentimes, personal loan scams start in a very similar manner as phishing — email — or phone scams,” Genaway said. “If you receive an email with an offer for a personal loan and the message contains spelling, punctuation or grammar errors, it can be an immediate red flag.”

“If you receive a phone call with an offer for a personal loan and the caller is rushing you to make a quick decision or you ‘risk the offer being rescinded,’ it’s often a red flag as well,” Genaway said.

Taking out a personal loan is a big decision that you shouldn’t make quickly. Legitimate financial institutions want you to feel comfortable with your choice, so you’ll never be pressured to make a move before you’re ready.

When you take out a personal loan, you should be the one receiving the funds. If you’re asked to pay money out of your pocket for your loan, that’s a problem.

You should never make payments for a loan directly to an individual, according to the FTC. The agency also advises against using a wire transfer service or sending money orders to pay for a loan, because a legitimate lender wouldn’t make a request like that.

Beware if the lender loans money to those with a poor credit histories, Genaway said. If your credit is poor, a lender not interested in your creditworthiness might seem like a dream come true, but it’s likely a scam.

The FTC notes that advertisements containing wording such as “Bad credit? No problem” or “Get money fast,” are often telltale signs the lender is trying to swindle you. It might not be what you want to hear, but legitimate lenders typically verify credit information prior to approving a loan.

Legitimate lenders are open and honest about any fees associated with your loan. If you’re immediately hit with charges before getting your funds, something isn’t right.

Application, appraisal and credit report fees are standard, but the lender usually deducts the fees from the amount you borrow. If a lender asks you to pay upfront fees for services like insurance, processing or paperwork, don’t move forward with it.

“It’s important to remain diligent in an uncertain situation where these red flags may be present,” Genaway said. “Most importantly, keep in mind, the scammer is not only trying to potentially obtain money from you, they could also be attempting to obtain personal information such as social security numbers, bank account numbers, address or any other confidential personal information, which could be used for fraudulent purposes.”

The possibility of falling victim to a scam might make you hesitant to apply for a personal loan online, but it’s actually very safe if you exercise proper due diligence. Jeffrey Brown, a financial advisor in the St. Louis area, said applying for a personal loan online is common practice these days, but he advises consumers to do it the right way.

“People get panicked and they make poor decisions because they’re trying to deal with the short term, but they get themselves in trouble in the long term because they haven’t made a wise decision with their loan,” Brown said.

“It has become almost commonplace to skip working directly with a banker or visiting a local branch in lieu of obtaining financing online,” Genaway said.

Consumers can identify potentially fraudulent websites a couple different ways, according to Genaway. First, make sure a lender’s site is secure — the URL on secure sites start with “https” — and look for a padlock symbol in the address bar on any page you’re asked to provide personal information.

“If the perceived lender’s website is not secure or does not have a padlock symbol, do not enter any additional information” said Genaway. “There is no reason a legitimate lender would not have a secure website, meaning the site you are on is unsecured and could potentially be a fraudulent website.”

Brown reiterated the importance of entering personal information only on a secured website, and also suggested checking with the Better Business Bureau to review the lender’s ratings.

Beyond looking for a secure website, make sure the lender has a physical address.

“If there’s an address listed on the website, double check the address via your favorite online map service to see if there is a building there, and preferably, with their name on or around the building,” Genaway said. “Often times, fraudulent lenders will have addresses that are actually vacant lots or buildings that would not normally contain operating businesses.”He also said online lenders are required to register in the states where they do business, so see if you can verify that the proper licenses are in place.

“The lender’s website should list any states in which it is allowed to conduct business, and if it doesn’t, the lender might be fraudulent,” Genaway said.

He also advises researching a lender’s online reviews and ratings to learn more about other customers’ experiences.

Brown emphasized the importance of researching the lender you’re dealing with, and recommended covering all the bases by specifically searching for unfavorable information on the lender. Do a Google search and include the lender’s name and key terms associated with a negative personal loan experience.

If you’re conned into a personal loan scam, Genaway said to contact your local police department. He also advised reporting it to your State Consumer Protection Office and the Federal Bureau of Investigation Internet Crime Complaint Center.

Speaking up promptly can help authorities catch the scammer quickly. The faster they’re shut down, the less time they’ll have to target innocent consumers.

Terms24 to 60months

When you do it correctly, finding a personal loan online is a safe way to get a competitive rate. Now that you’ve learned about personal loan scams, be on the lookout for red flags. In some cases, they’ll be obvious, but sometimes the signals are harder to spot. Always trust your instincts and never proceed with a lender that doesn’t feel quite right.