Taking out a personal loan is a big decision and requires planning and research. When faced with an important purchase or paying down credit card debt, personal loans offer consumers access to much-needed funds.
However, there are many scams and fraudulent individuals ready to steal your money. According to the Federal Trade Commission, consumers lost nearly $3.3 billion to scammers in 2020. Personal loan scams often attempt to pose as authentic businesses. They use this tactic to gain access to sensitive personal details, bank account information, and more.
It’s critical to learn how to identify if a potential loan agent or opportunity is a scam and how to protect yourself against unscrupulous lenders.
Ways to assess if a company is legitimate or fake
If you plan to apply for a loan, there are several ways you assess the validity and integrity of potential lenders. Consider:
- Verifying if the company is registered — Any company dealing in the financial sector must be an authorized and accredited loan provider. They must have a license from a regulatory agency, which can be confirmed with a little research.
- Checking online reviews — In the digital era, a company without any reviews or a mention on any online directories is suspicious. A simple search for company reviews could shed light on its legitimacy.
- Seeing if the company registered with the Better Business Bureau (BBB) — The BBB can give you insights into the business’s history and customer satisfaction reviews. If the business is not registered or shows no history, you may want to do additional digging to confirm it is not a scam.
- Checking the company’s website — Always check to see if the web address starts HTTPS and has the padlock symbol. This signals that the site itself is secure. Perusing a company’s website can also provide more information about the business, including whether it holds any certifications.
How Can You Spot a Scam?
Fraudsters have become more creative and sophisticated in their attempts to scam well-meaning people. That said, there are some red flags to look out for when applying for a personal loan. There are many tricks fraudulent individuals, and businesses can use to scam customers. Here are five you can spot a scam:
1. Lender Offers a “Guaranteed” Approval for a Fee
Legitimate lenders will not ask you to pay a fee for guaranteed loan approval. If the lender with which you’re applying for a loan is asking for payment upfront, you may want to do additional research.
2. No Credit Check Personal Loans
Most lenders require credit checks before approving you for a loan. While there may be a few options for no-credit-check personal loans, you may want to confirm that you’re working with a reputable lender.
3. The Lender Pressures You With a Sense of Urgency
Always take your time when applying for a loan. Lenders that create a false sense of urgency or pressure you into making a decision right away should be avoided. Some scammers will use these tactics to goad people into making bad decisions or taking out bad loans.
4. Lenders Asking for Prepaid Cards
Fraudulent lenders are known to ask for gift cards claiming they need them for insurance or fees. Like cash, prepaid cards are nearly untraceable, making them a prime target for bad actors. If a lender asks you for a prepaid card, it should be a red flag. Reputable lenders will bundle any required fees into the total cost of your loan.
5. Lenders Without a Physical Address
Some fraudulent lenders will create fake addresses for their businesses. If the lender has a physical address or PO box that does not appear on a map or doesn’t exist, proceed with caution.
When looking for a personal loan, you need to be vigilant about the legitimacy of the company. While many scams exist, a little bit of common sense and research can go a long way in keeping you protected from fraudsters and other bad actors.