7 Warning Signs of Online Loan Scams

There are plenty of reasons why you might find yourself in need of a loan. Maybe you’re looking to go to college and need help with tuition payments, or maybe you’re looking to buy a house and need to take out a mortgage. You could even be looking for a financial safety net to help you in times of emergency when your savings won’t cover the cost of that expense. Whatever the reason may be, there’s a good chance that there’s a personal loan out there for your needs.

But where there are people in need, there are also people on the prowl to take advantage of the situation. It’s because of these people that you need to keep your eyes peeled for loan scams. There may be fake companies waiting in the shadows to take your money, steal your identity, or both.

The potential consequences of facing online loan scams can be severe, so before you rush into anything, take your time to review any offers you might receive and look for potential warning signs. What are these warning signs though? Well, today we’re going to take a look at some of the big ones and go over what you can do to look for legitimate online loans.

Click here to learn more about when you might want to consider applying for a short-term loan.

What are Loan Scams?

Broadly speaking, loan scams are fake offers for personal loans which are designed to gather up your personal information, ask you to pony up for false loan fees, and get out of there without you ever seeing a cent. They may even be looking to get their hands on your Social Security number which can have some dire consequences.

When it comes to these types of scams, you might run into fake companies telling you they’ll lend you money without verifying your financial information in any way, or they may just make an unsolicited offer, collect some bogus fees, and leave you in the dust.

7 Signs That You Might be Facing a Loan Scam

While online loan scams can have some serious consequences, the good news is that if you know what to look for, you can give yourself a better chance to spot them before they’ve done any harm. Let’s take a look at some of the main warning signs for you to keep an eye out for.

person looking through a magnifying glass

1. The Financial Institution is Not Authorized to Offer Loans in Your State of Residence

In most cases, in order to lend or service loans in a particular state, a financial institution will need to be licensed to do so and will need to follow all applicable state and federal laws. While different states have different requirements, this is something you should always be looking out for. To verify this, take a look at their website to see if they’ve posted an image of their state license, or check with the attorney general office of your particular state to see if they’re registered. If they’re not, be wary.

2. You’re Asked to Pay with a Prepaid Credit Card or Gift Card

Another thing to look out for is the method of payment the lender is asking for. If they ask for payment in the form of a gift card or a prepaid credit card, or if they ask you to send money directly to an individual, keep your guard up. Transactions made through your bank account are traceable, and it’s typically the method legitimate online loan lenders may use. When you’re dealing with loan scams, the people trying to scam you are looking to avoid leaving a trail, so that’s why they’ll ask for unconventional forms of payment like the ones we mentioned.

Want to learn more about the characteristics of a responsible online lending company? Click here!

3. Their Website is not Secured

This is a good thing to look out for when you’re browsing any website, but it is especially important when you’re considering sharing your personal information. In order to indicate that a site is secure, it should have a little lock symbol at the far left of your browser search bar. On top of that, the URL should start with an “https” instead of just “http”. If the lender’s site is missing one or both of these things, it might indicate that any personal information you share is susceptible to being stolen.

4. You’re Being Offered a Guaranteed Loan

You know how the saying goes: there are no guarantees in life. While this may or may not apply in every scenario, it’s something that should be heeded when it comes to online loan offers. If a lender gives you a guarantee that they’re going to lend to you right off the bat, be on your guard. There’s always an element of risk involved when a financial institution decides to lend money to you. When it comes to legitimate online loans, a financial institution will always do its due diligence to assess you as a borrower. This could mean they check your credit score, ask for proof of income, and/or a number of other things.

person with outstretched hand

5. The Financial Institution is Putting on the Pressure

The role of a financial institution is to offer funds for specific reasons in times of need. It’s not to force people into taking on debt they can’t afford. If you feel like you’re being pressured into making a decision and/or you’re given a strict deadline to decide, you may be walking into a loan scam.

6. The Rates and Terms of the Loan Aren’t Clear

Another important feature of a legitimate lender is transparency. They should always be clear about their rates, terms, privacy policies, and any important details pertaining to your loan or personal information. If they’re not disclosing these things, it might be a sign of an online loan scam.

7. You’re Asked to Start Making Payments Before Receiving Your Funds

When you’re borrowing money from or through a financial institution, you should receive your money before you’re expected to make any payments towards the loan. If you’re asked for any sort of up-front fees or advance payments, think twice about pursuing this offer. While a legitimate financial institution may charge fees such as an application fee, they’ll be transparent about these charges.

person typing on a keyboard looking up online loan scams

Look for Legitimate Online Loans

We’ve spoken about what to look for to avoid loan scams, but what do you look for when you’re actively seeking legitimate online loans?

These types of loans are offered by financial institutions that protect your information and are compliant with all applicable state and federal laws. This could include installment loans, student loans, lines of credit, and more.

So, what are some of the key features you should be looking for to recognize legitimate online loans? Here are some of the most important ones.

1. Full Transparency

Like we mentioned before, one of the key warning signs of online loan scams is a lack of transparency. More specifically, a lack of transparency when it comes to the terms, rates, and conditions of your loan. This is obviously a big problem considering these things tell you how much your loan will cost, how long you’ll have to pay it off, and the potential consequences of missing payments.

These are vital details, so it’s important that they’re communicated clearly and are easily accessible throughout the borrowing process. This means that they should be visible on a financial institution’s website and the details for your specific loan should be clear as you move through the different stages of borrowing.

If undisclosed fees start to creep in, then it’s usually a bad sign. Whether it’s for a line of credit, installment loan, or any other type of loan, you should never sign a loan agreement if the details of the loan aren’t made clear. So, when you’re looking for a loan, make sure all the important information is easily accessible!

2. A Secure Process

If you’re looking to apply for an online loan, you can’t do so without sharing certain pieces of personal information. And this sharing of information usually happens over the internet.

The safety of your personal information is obviously incredibly important. If someone gets a hold of it, they could open accounts in your name, access your current accounts, or you could become a victim of identity theft.

Responsible online lending companies will have firm measures in place to protect all of your personal information. When you’re looking for online loans, make sure you take a look at a financial institution’s privacy policy and make sure that they take the protection of your personal data seriously.

3. Good Reputation

Another simple but important step you can take to make sure you’re looking in the right place for legitimate online loans is to look at reviews online. When you’re shopping for any type of product, there’s a good chance you do this already, so why not do it for something as important as a loan?

One of the most important factors here is to make sure they have enough reviews to provide you with a relatively reliable picture of what your experience working with this financial institution might be like. Most companies are going to have customers with varied experiences, but if the average review is relatively good, this can be a good sign that they’re running a legitimate operation.

If you aren’t sure where to go to find these reviews, take a look at review sites, such as Trustpilot.

What You Should Do if You Think You’ve Been Scammed

If despite your best efforts you fall victim to online loan scams, there are some things you can do that may help to stop the bleeding.

First, you can file a complaint to the Federal Trade Commission (FTC)[1]. You can then file a complaint with the Internet Crime Complaint Center, which is operated by the FBI[2]. You can also call your local police to get a police report on file. If a scammer is abusing your current credit accounts, consider putting a credit freeze on them.

Exercise Caution to Avoid Online Loan Scams

As much as you may need a loan to help you in a particular situation, the potential consequences of dealing with loan scams can be severe. Having your identity stolen or your credit accounts used recklessly is no joke, so it’s important to know what to look for to keep your information safe.

Overall, make sure to do your research, look for financial institutions with established reputations, and exercise caution!

Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see CreditFresh’s Terms of Use.

[1] https://reportfraud.ftc.gov/#/

[2] https://www.ic3.gov/Home/ComplaintChoice/default.aspx

Posted in: Uncategorized