Spot a Personal Loan Scam in Seconds: 7 Essential Warning Signs

Every year, more than a million Americans fall victim to personal loan scams, resulting in a staggering loss of over $3.8 billion.

In this guide, I won’t just outline the red flags of a potential scam; I’ll also shed light on the two most prevalent schemes draining your finances.

Beyond monetary savings, it’s about safeguarding your financial well-being, preserving your credit score, and maintaining your peace of mind.

Whether you’re considering a personal loan or not, investing a few minutes in reading this could potentially save you thousands down the line.

Loan scams impact everyone, regardless of their current financial situation.  

Last year, according to data from the Federal Trade Commission (FTC), consumers reported losing over $3.8 billion to investment scams, making it the category with the highest reported losses.

Understanding Personal Loans

Let’s start with a simple breakdown of personal loans and why they might become necessary.

What is a Personal Loan?

So, what exactly is a personal loan? It’s a type of unsecured loan you can obtain from a traditional bank or an online lender. Unsecured means you don’t need to offer any collateral, like your home or car, to secure the loan. Plus, you’re free to use the funds for any purpose you deem fit.

Why Might You Need One?

While the average interest rate on personal loans hovers around 14%, it’s still lower than the typical 18% rate on credit cards.

Interestingly, nearly two-thirds of personal loans are utilized to pay off credit card debt.

Additionally, online lenders often have more lenient credit score requirements compared to traditional banks, making them accessible even to individuals with less-than-perfect credit histories, like myself during the recession.

When borrowers find themselves in desperate situations with limited options, it’s like a beacon for scammers, loan sharks, and hackers.

Shockingly, nearly a trillion dollars annually gets siphoned away from unsuspecting individuals through deceptive loan promises and fraudulent websites.

Unfortunately, online regulators face an uphill battle; they lack the resources to monitor every corner of the internet, allowing many of these scams to persist.

The Three Most Common Personal Loan Scams

Cloud Based Personal Loan Scam

A cloud-based personal loan is simply a loan you get online through a lending marketplace that links borrowers with lenders.

Instead of going from bank to bank, these marketplaces act as one-stop shops, making it super convenient for borrowers to explore various loan options all in one place.

With the surge in fintech’s popularity, there’s also been an uptick in cloud based personal loan scams.

Cloud based personal loan scam begins with enticing advertisements or emails promising quick and easy loans with minimal documentation.

These offers often claim to cater to individuals with poor credit scores or those in urgent need of funds.

However, behind the façade of legitimacy lies a web of deceit.

Scammers may request upfront fees under various pretexts, such as processing fees, insurance, or administrative charges.

Once the victim pays these fees, the scammer disappears into the digital ether, leaving the victim in financial distress and without the promised loan.

The Phishing Campaign

One prevalent loan scam is known as a phishing campaign.

This scheme involves scammers sending out thousands of emails containing a link, purportedly to verify your bank account login or address a supposed issue.

Often, these emails masquerade as helpful alerts from your bank, claiming to have detected suspicious activity on your account.

They’ll urge you to click the link to confirm that it wasn’t you.

However, clicking on such links or opening attachments can inadvertently download malicious viruses or code onto your computer, granting hackers access to your sensitive information.

If you receive such an email and are unsure of its legitimacy, it’s best to bypass the email entirely and visit the company’s website directly. Simply perform a Google search or type the company’s URL into your browser to access their website, and then reach out to their customer support for clarification.

The Bank Wire Scam

Another common scam, and perhaps the one that ensnares people most frequently, is the bank wire scam.

Here’s how it typically unfolds: the scammer convinces you that they need to verify your bank account by initiating a wire transfer before granting you a loan.

Once the wire transfer is executed, they instruct you to promptly return the funds via an ACH payment or similar method.

My friend Sarah fell victim to this exact scenario.

Upon receiving the wired funds, she dutifully sent the money back to the supposed lender.

However, unbeknownst to her, the wire transfer never actually went through because the sender’s account lacked sufficient funds.

Consequently, Sarah found herself out of pocket by several hundred dollars.

It’s a deceptive tactic that leaves victims in the dark until it’s too late, leading them to unwittingly send back the verification funds before realizing the scam.

Red Flags of Personal Loan Scams

However, there are telltale signs you can be on the lookout for, clues that can help you identify a scam before you become a victim.

Red Flag #1: “No Credit Check” Loans? Walk Away!

The first warning sign to heed is the lure of “No Credit Check” loans.

While they may seem like a lifeline for those with poor credit, it’s essential to recognize the underlying risks.

Legitimate lenders assess the risk of a loan by examining your credit report and score.

So, if a lender promises money without conducting this crucial check, you’re likely to face exorbitant interest rates, often surpassing 35% annually.

In some cases, these no credit loans are outright scams, designed to drain your bank account before you realize what’s happening.

Red Flag #2: Beware of Upfront Fees

Another red flag, and where many scams thrive, is the demand for upfront fees or collateral.

Reputable personal loan providers never charge upfront fees before disbursing your loan.

While most legitimate lenders may deduct an origination fee from your loan amount, it only occurs after you’ve received the funds.

Be wary of terms like application fees or processing fees; they’re often used as excuses to swindle unsuspecting borrowers.

My advice? Refrain from paying any fees to an online lender. Even if a loan site appears credible, there’s no justification for paying upfront fees.

Red Flag #3: Is the Lender Registered?

The third warning sign, arguably the most effective in spotting scammers, is an unregistered lender.

Every lender, whether operating online or offline, must register in each state where they conduct business.

Typically, registration occurs through the State Attorney General’s office or a specialized state banking regulator.

I encourage you to check online resources specific to your state.

State regulators scrutinize applications from potential fraudulent companies and handle complaints, making them a valuable resource to consult whenever a lender approaches you with a loan offer.

Red Flag #4: Missing Physical Address? Not a Good Sign

Another significant red flag is the absence of a physical address on the lender’s website or in their emails.

According to the FTC spam act, all business emails must include a physical address.

This could be a PO Box, but it must be clearly listed and verifiable.

Even if the address provided is a PO Box, you can cross-check to ensure the company is registered in that state.

This straightforward step is often enough to deter scammers; they either fail to provide an address or list a fake one, neglecting to register their business with the state.

Red Flag #5: Unsolicited emails? Hit Delete!

Next on our list, and perhaps the most prevalent warning sign of a loan scam, is receiving unsolicited emails.

It’s astounding how many individuals fall victim to spam emails each year.

Any stranger offering commissions, bonuses, or money via email is, more often than not, part of a scam.

Why would they contact you instead of someone with expertise in the field?

Personal loan scams frequently manifest through these deceptive emails, enticing recipients with irresistible loan offers and enticing interest rates.

These emails typically include a link prompting you to provide personal information.

However, clicking on such links can grant scammers access to your computer through viruses or malware, resulting in identity theft.

Remember, never click on links or open attachments from unfamiliar senders. If you receive an email from a lender or company, always visit their website directly instead of clicking on links provided in the email.

Red Flag #6: Grammatical Gaffes: A Clue in Disguise

The next warning sign might seem amusing if it weren’t for the thousands of dollars people lose to scammers every year.

We’re talking about misspellings and poor grammar in emails.

Many of these loan scams originate from outside the United States, and it’s rather comical how atrocious their English can be at times.

I once received an email from a scammer and counted at least three spelling mistakes.

Beyond just the spelling errors, you can also identify these scams by peculiar greetings, like using ‘Dear’ or ‘Honorable Sir,’ or word choices that simply don’t sound right.

Red Flag #7: Phishing Scams: Don’t Click that Link!

Now, the seventh warning sign, which catches approximately 99% of scams, involves scrutinizing the sender’s email address.

Typically, when you receive an email from a legitimate business account or website, the domain name is visible in the sender’s address.

For instance, if PayPal sends you an email, the address would end with ‘@Paypal,’ or if it’s from my blog, it would end with ‘’

However, take a look at the email I received, supposedly from PayPal, but the address ended with ‘,’ which is clearly suspicious and definitely not from PayPal.

Many fraudulent emails use Hotmail or Gmail addresses because scammers can create these anonymously, without any verification or tracking.

Always double-check the sender’s email address before considering the email’s contents.

Key Takeaways

  1. Be wary of “no credit check” promises, upfront fees, unregistered lenders, missing addresses, unsolicited emails, grammatical errors, and suspicious sender addresses.
  2. Never click on links or open attachments in emails, even if they appear to be from your bank or a legitimate company. Always visit their website directly.
  3. Never send money back to a lender via wire transfer or ACH payment as a verification step. Legitimate lenders don’t use this method.
  4. Go directly to a lender’s website, avoid no credit check loans and upfront fees, verify state registration, and look for a physical address.
  5. If you receive unsolicited loan offers or suspect a scam, report it to the FTC.

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