Loan scams have been around since people started borrowing money. These scams are evergreen and can take myriad forms. With the rising number of loans, so is the number of loan scams. These scams often target people who have never taken out loans. Another common target are those whose loan applications were denied. However, there is no strict target when it comes to loan scammers. Anyone interested in a loan can fall into their trap. Loan scams are dangerous and can amount to painful financial losses. This is the last thing you need when you’re already in need of money. Learn more about top loan scams and how to avoid them.
The Most Common Loan Scams and How to Avoid Them
There are so many legitimate companies and institutions offering loans these days. Therefore, making a difference between them and scammers might not always be easy. However, there are red flags you can spot. For example, loan solutions that sound too good to be true. Low rates you simply can’t find anywhere on the market might signal a scam.
Generally, most loan providers offer similar loan conditions. Moreover, they have similar requirements. As a borrower, you must meet specific criteria. Otherwise, you can’t get approved for a loan. Your credit score is the most critical factor. If you have a really low score, you won’t be able to get a loan unless you improve it. If you’ve already applied for several loans and got rejected, be wary of benevolent lenders. These might be scammers in disguise.
They usually prey on people with poor credit in urgent need of cash. They know these people can’t find funding elsewhere. But instead of helping them, they take even the little victims have or steal their personal data. These scammers usually find victims online. For example, they use social media ads. Alternatively, they can even send flyers by mail. Their offer is simple. They provide funds to anyone seeking financial help, regardless of borrowers’ financial circumstances.
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How Do Scammers Con People?
Asking for personal information
You might not have money, but you have an identity. This is worth as much as money. Loan scammers can trick you into providing your personal details. They do this by claiming they need it for your loan application. Your social security number, name, bank account, or address are invaluable. You should never hand them out, especially not over the phone.
What do scammers do with victims’ sensitive information? They can use it to commit financial fraud by impersonating their victims. They can also impersonate people to receive their social benefits or tax returns.
Check if the firm promising you help is a legit one. To do this, look for its BBB accreditation and rating, registration number, and customer reviews. Only, share your personal information with reliable companies.
Asking for upfront payments
Another common strategy loan scammers rely on to make illicit gains are service or loan-related fees. These are not uncommon in the loan industry. For example, you could pay a fee if you use a third-party service to find a lender. However, these usually come after getting your loan application approved. Yet, scammers find many pretexts to ask for the payment upfront. They might claim you need to pay an initial processing fee. They can also justify the money as documentation fees. These are advance-fee loan scams. They involve paying a fee for a phony credit with low interest.
Be wary of this strategy. It’s not normal to give money when you’re the one needing cash. You’re the borrower. You’re making a loan application. So, you should receive money instead. Moreover, never pay these fees via prepaid cards. Legitimate lenders never ask for this. If you make any payments, they will be through banks. Furthermore, any fees are usually part of the loan. You don’t have to pay them separately.
Providing phone offers
In the U.S., phone offers are not legitimate loan offers. Any valid loan offer is made in writing. If someone calls you to tempt you with a loan, hang up. Legitimate companies don’t do this. Moreover, they are legally required to provide the written offer with all the related fees. You should not move on if you don’t receive something like this. More importantly, never share your personal information over the phone. Scammers might ask for this, claiming it’s for the loan application.
There are many types of loan scams to watch out for. Some of the most common strategies are advance payment fees and phishing. There are also some loan types that are more often linked to scams. These include
- Student loans
- Car title loans
- Cash advance loans
- Pawn shop loans
To avoid loan scams, be wary of unsolicited offers. The way it should go is you contacting the lender, not the other way around. Also, don’t share your personal information with dubious individuals, especially over the phone. Moreover, avoid paying in advance, especially if you haven’t signed a contract yet.
Credit to Diamond Shield Management.