How to Spot and Avoid Personal Loan Scams

Consumers lost almost $5.8 billion to scams in 2021, a big increase from 2020.

Fraudsters often target people who need money or are more likely to believe fake offers.

You can protect yourself from personal loan scams by learning how to check if a loan company is real.

Learn how to spot and avoid personal loan scams to protect yourself from losing money to fraudulent practices.

Discover tips on checking the legitimacy of loan companies to stay safe from financial fraud.

An Image of a Scam Alert
How to Spot and Avoid Personal Loan Scams. Photo Source (Freepik)

How to Spot and Avoid Personal Loan Scams

1. The lender guarantees approval

Good lenders will check your credit score and history from all three major credit bureaus (Equifax, TransUnion, and Experian).

They want to see if you have a history of paying bills on time.

Bad lenders target people who are more likely to miss payments and pay high fees.

They make promises like “Everyone is approved!” or “Bad credit is okay!”

Some good lenders offer loans to people with bad credit, but they will still ask about your income, job, and education.

2. The lender isn’t registered in your state

Check a lender’s website to see if they’re registered in the states where they do business.

If they’re not listed, they might be a scam.

It’s important to verify this to avoid scams.

Before you share your information, make sure the lender is registered in your state.

If they’re not, they can’t lend to you.

3. The lender demands payment upfront

Scammers may ask for prepaid cards, gift cards, or your banking information, claiming it’s for insurance or fees.

This is a scam.

Legit banks may charge for your application, but they deduct it from your loan.

Prepaid cards are suspicious—they’re like cash and can’t be reported stolen.

If you give your bank info, you can dispute it, but it takes time and you might not get your money back.

A real lender won’t ask for money upfront.

You should get your loan through a wire transfer, direct deposit, or a check you can deposit.

4. The lender calls, writes, or knocks

If someone offers you a loan over the phone, through mail, or at your door, be careful.

It’s against the law for companies to offer loans over the phone and ask for money upfront.

This breaks The Telemarketing Sales Rule.

But it’s okay for lenders to send general ads by email.

Some scammers pretend to be a real lender or change their caller ID to trick you.

Protect yourself by ignoring these offers and contacting the lender directly through their secure website or customer service hotline.

If the lender doesn’t know about the offer, it’s probably a scam.

5. The lender has no physical address

Check if every lender you’re interested in has a real address.

Use Google Maps to confirm it’s real.

Scammers might give fake addresses, so be sure to check.

If you can’t find a real address, don’t trust that lender.

Scammers hide to avoid getting caught.

6. The lender pressures you to act immediately

Don’t feel rushed into making a decision.

Scammers use quick deadlines or threats to pressure you.

Legitimate lenders give you time to think.

7. The website is not secure

When you look at information from lenders online, especially when you’re applying for a loan, make sure the website is safe.

Look for “https” at the start of the web address and a padlock icon.

This means your information is protected.

If a company doesn’t have a safe website and asks for your information, they might not care about your privacy or security.

Real lenders have safe websites to keep your personal information safe.

8. It sounds too good to be true

If a personal loan offer sounds too good, it’s likely a scam.

Legit lenders won’t call you with amazing offers or give you a super-low rate without checking your credit.

Watch out for letters promising instant approval without a formal application or offers to get your loan money quickly.

Common Types of Loan Scams

Most loan scams try to get money upfront or trap borrowers with tough terms that lead to late fees or other charges.

Here are some common ones:

  1. Loan fee scam: Scammers promise a cheap loan but ask for hundreds or thousands in fees upfront. They take the money and disappear without giving the loan.
  2. No-credit-check scam: Real lenders look at more than just your credit score, but scammers promise loans without checking credit. This is suspicious because your credit history shows how risky you are as a borrower.
  3. Private student loan forgiveness scam: The government forgives federal student loans, not private ones. Companies saying otherwise are likely scams.
  4. Debt consolidation scam: Legitimate debt consolidation can save you money, but pushy companies or those telling you to stop talking to creditors are likely trying to scam you.

Who is Most at Risk for a Loan Scam

Scammers go after people who are unaware or might struggle to get a loan in the usual way.

Those with lots of debt, older people, and those with bad credit are most at risk.

For example, no-credit-check and payday loans might seem appealing to people with poor credit because other loans from trustworthy lenders often have high-interest rates.

Unfortunately, scammers target these people by buying lists of individuals who have looked for or applied for these types of loans online.

If you’re in a high-risk group, be careful of any company offering a loan that seems too good to be true.

If you’re not sure, check if the company is licensed in your state or contact your state’s attorney general.

What to do if you Think You’ve Been Scammed

No one wants to think they’ve been tricked, but it happens.

The good news is you can take these steps:

  1. Gather proof: Save emails, screenshots, or other evidence.
  2. Contact the police: Report it to have an official record.
  3. Tell oversight agencies: Inform your state attorney general, the FBI, the FTC, and the Better Business Bureau to protect others.
  4. Share with family and friends: Help others stay aware of changing scams.
  5. Set up a fraud alert: Use a major credit bureau (Experian, TransUnion, or Equifax) to alert creditors to verify your identity before issuing new credit.

How to Spot a Legitimate Loan Company

Even if your credit isn’t great, there are legit loan options. Follow these steps to find a good lender:

  1. Check contact details: Look for a lender’s phone number, email, and address on their website.
  2. Read reviews: Check Google and Yelp for customer feedback.
  3. Verify registration: Legit lenders must be registered with state agencies. Ask your state’s attorney general if you’re unsure.
  4. Watch out for scams: Be wary of guaranteed approvals, lack of licenses, upfront payments, and unsolicited offers. Avoid these lenders.

Despite your credit, many lenders can help.

Don’t fall for scams.

Find a lender willing to work with you.


In summary, it’s important to know how to recognize and avoid personal loan scams to protect your money.

By checking for certain signs, like contact information and registration, and being careful of too-good-to-be-true offers, you can keep your finances safe.

Stay informed, trust your instincts, and ensure that you verify the legitimacy of loan companies before sharing any personal information or agreeing to loans.

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