Protecting Yourself from Loan Scams: A Guide to Identifying and Avoiding Fraud

When in need of financial relief, it can be tempting to take any loan offer available. However, an alarming number of consumers fall victim to loan scams, losing not only money but also their personal information. According to the Federal Trade Commission (FTC), approximately 44% of consumers aged 20 to 29 lost money to loan fraud in 2021. In this guide, we will discuss what a loan scam is, how common they are, and what warning signs to look out for. We will also explore the essential steps to take to protect yourself from falling victim to these scams.

What is a Loan Scam?

A loan scam is when a person or entity offers a fraudulent financial transaction to gain access to your personal identifiable information (PII) for identity theft and financial damage. Scammers often create fake websites, logos, caller IDs, and social media pages to impersonate legitimate loan companies.

Examples of PII include:

Social Security number (SSN) Individual Taxpayer Identification Number (ITIN) Credit card number Passport number Driver’s license number

How Common Are Loan Scams?

Loan scams are unfortunately becoming increasingly common. According to the Federal Trade Commission, over 8 million fraud reports were made in 2021, with a 70% increase from 2020. These scams cost consumers an estimated 5.8 billion dollars in losses, with about 2.3 billion dollars coming from government imposter scams.

Warning Signs of Personal Loan Scams

Protecting your personal information and avoiding loan scams is crucial. Here are some common tactics used by scammers and warning signs to identify fraudulent loan companies:

Sense of Urgency

A legitimate lender will not pressure potential borrowers to apply for a loan. If you receive excessive phone calls, emails, or texts from a lender, this could be a sign of a fraudulent operation. Legitimate financial institutions do not create a sense of urgency.

Harassing Behavior

Harassment includes unwelcome behavior such as repetitive phone calls, coarse or offensive language, threats of violence, and any other actions meant to annoy or intimidate you. It is illegal for lenders to harass potential borrowers. If a lender exhibits this behavior, report them to the Consumer Financial Protection Bureau (CFPB).

Guaranteed Approval

A reputable lender will not offer a loan with guaranteed approval. This is a red flag. While many lenders have flexible qualification requirements, fraudsters may advertise personal loans with guaranteed approval, potentially putting you at risk of fraud before a credit check and income verification.

Payment Requested

Legitimate lenders may request an application fee but should never ask for payment upfront before providing emergency cash or signing a financial contract. If a lender insists on immediate payment for a payday or personal loan via untraceable methods like cryptocurrency or prepaid cards, they are likely not legitimate.

Loan Offers Over the Phone

Online lenders often provide a faster and more convenient process. However, legitimate lenders should have a secure website where you can safely provide personal and bank account information. It is illegal for loan companies to request immediate payment over the phone.

Conclusion

By staying vigilant and understanding the warning signs, you can protect yourself from falling victim to loan scams. Always do thorough research on a lender, check their accreditation, BBB rating, and user reviews. Safeguard your personal information and never provide sensitive details to a lender before ensuring they are legitimate. Stay informed and stay safe.