Spotting Personal Loan Scams: The Warning Signs and What To Do If You Fall for One

Written By
G. Dautovic
July 06,2023

Taking out a loan can make all the difference. Unfortunately, with an increased need for personal loans, the number of scammers also rises. These thieves typically pretend to be trustworthy and well-known lenders, or simply offer you a deal that seems too good to be true, charge you upfront fees, or collect your details beforehand.

After you provide them with what they need - they never come up with the money for the actual loan and disappear altogether to avoid the consequences.

To help you avoid falling victim to one of these personal loan scams, we’ve compiled a detailed guide on this type of fraud. Read on to find out how to spot one of these scams, and most importantly - what to do if you ever get hit by them.

What Is a Loan Scam?

When looking for a personal loan, you’ll likely find the term “loan scam” tossed around quite often. The basic definition of loan scams entails parting with fee money or sensitive information, without actually getting a loan.

People will also call loans with unfavorable terms “scam loans,” but the official name for this is “predatory loans.” They might have high interest or other unfavorable terms, but follow the minimum legal guidelines. On the other hand, actual scams have no regard for legal standards.

Let’s get familiar with some of the more popular loan scam types to give you an overview:

Common Types of Loan Scams

The most common loan scam is an “advance-fee” or “loan-fee” scam, where your “lender” will ask you to pay for the service, insurance, or processing fees upfront. These fees can go into the hundreds, or even thousands, of dollars, after which your “lender” disappears.

The most “lucrative” opportunities for scammers are to offer loans for bad credit, for example. They often advertise outstanding loans and promise not to do a credit score check. A private student loan forgiveness scam is also easy to spot:

While there are programs for forgiving federal student loans, people with private student loans will never have them forgiven; any company offering to do so is likely a scammer.

These scams apply to any kind of loan, so we’ve listed out some red flags to be aware of when shopping for a loan.

What Are the Initial Red Flags of a Financial Scam?

The first thing to pay attention to is the lender’s promises. It sounds too good to be true? It sounds fishy? It probably is. Here are some telltale signs a deal is something you should stay away from.

No Credit History Check

If your lender shows no interest in your credit history whatsoever, run away. One of the most common scams targeting people with no or bad credit is the so-called “no-credit-check” scam.

Reputable lenders will always check with major credit bureaus to determine your creditworthiness, with a soft check before you agree to a deal, and a hard one afterward. Therefore, legitimate loans for bad credit will not only require an insight into your credit history, they will also expose your employment and income information.

Upfront Fees

As mentioned before, if a lender is asking for fees upfront, it is typically a significant clue that this lender might not be the real deal. The loan itself should cover processing and origination fees.

You might encounter lenders asking you to cover these fees upfront or lay prepaid gift cards or other untraceable payments down as collateral. This is something all advance-fee loan scams have in common, so if you can’t report collateral as stolen down the road, avoid giving it to the lender. Even better, avoid a lender asking for those altogether.

A legitimate provider will always be clear about its fees, so surprise fees are a sure signal of a shady lender.

Lender Not Found

Luckily, the Federal Trade Commission (FTC) requires all legitimate lenders to be registered for operation within one or more states. The list of states where the legitimate business lender is greenlighted for operation should be prominent on their website. If there is no such thing on the website, you could be dealing with a scam operation.

On that note, your lender should have an address prominent on the site, and it should also check out on Google maps. If Google maps show a vacant plot, avoiding the lender might be the safest option.

“Act Now, or the Deal Is Off the Table!”

If your lender pressures you to act immediately, that’s a clear indicator of personal loan fraud. Trustworthy lenders will typically give you days, if not weeks, to make your decision without the wait time impacting the terms.

Scam lenders will often use urgency to drive your acceptance. It is a common tactic used by some technically legitimate lenders as well, but even then, it might be safer to look elsewhere.

The Lender Approached You First

According to the FTC, it is illegal for lenders to offer their services via phone. So, if you have received a call offering an outstanding loan, asking only for your name and Social Security number - hang up. Otherwise, you’ll likely become a victim of identity theft. This is undoubtedly the easiest way to spot personal loan scams.

The same goes with door-to-door offers and any unsolicited mail you receive. You should be the one contacting the vendor after careful research, not the other way around. If they approach you first, there is a high chance it is a scam.

What To Look for When Researching Loan Providers

As you’ve seen so far, there are many telltale signs that a loan you’re looking into is a scam. So, what steps can you take to check whether that personal loan offer is the right deal and not another one of personal loan frauds?

1. Government Tools

Many government websites can help you perform a background check on a lender. If you want to know whether a lender is legitimate, or has any charges against them, look them up on one of these websites:

2. Google Power

If you are not coming up with anything on any of these sites, it is time to check other registries to find out if you’re dealing with loan fraudsters. Your state should have a registry of approved lenders, but the resources may vary.

Look up your state, and search for “licensed lenders” (e.g., “California licensed lenders”). Google will likely lead you to a valid registry for looking up a particular lender.

You can also Google the lender and check its reviews. The reviews could be a clear indicator of whether or not a lender is reputable. If many people leave testimonies of online personal loan scams, learn from their mistakes. Keep in mind that some people will call predatory loans scams, even though they’re technically legal, so you should stay away if you see that, too.

3. Is the Website Secure?

More often than not, scammers will use phishing websites with names similar to those of trustworthy lenders. Double-check whether you have made a typo when heading to a particular website. You should also check if the website uses HTTPS protocol, indicating that the website is safe to use.

4. Shop Around

You want to find the best terms for any loan, and that means researching and contacting multiple providers. This way, you will also learn what kind of terms you should be getting with legitimate loans, which will help you weed out potential personal loan frauds. Ignore those that stand out too much or sound too good to be true. As we’ve said before, they probably are.

Have You Fallen Victim To a Loan Scam?

If you think you’ve fallen victim to a loan scam, you should report it as soon as possible. You might not get your money back, but you can help authorities track down the scammer and prevent them from hurting someone else.

The first stop to report scams would be the police or sheriff’s department. You should report the scammer there and provide the authorities with any evidence you can. The evidence can include any records, such as copies of emails and text messages you might have exchanged with the scammer.

Furthermore, it is crucial to change and protect any personal and sensitive information you shared with the scammer. If you’ve given them your bank details, contact your bank and the credit bureaus and put fraud alerts on your credit report - you should even consider freezing your accounts.

Depending on how the personal loan scammers contacted you, you might take further action. For example, if you are a victim of online fraud - you can file a complaint with the FBI. If you received a fraudulent offer in your mailbox, you could report it to the US Postal Inspection Service.

The last and optional step is, of course, the internet. You can report a lender as a scam on all relevant sites, such as Trustpilot and the BBB Scam Tracker, which will share the information with the FTC and other law-enforcement agencies that deal with financial scams.


How do I know if I’m being scammed for a loan?


If loan terms sound too good to be true, they often are. Doing a background check on the provider through the available government tools and reading provider reviews before accepting any terms is also a good idea. Lastly, be mindful of paying anything upfront - fees are typically calculated into the loan with legitimate providers.

Does it cost money to apply for a loan?


Yes. There are different fees associated with every loan. The most common fees are origination fees and processing fees. These are fees legitimate lenders will calculate into your loan amount. In contrast, one critical loan-scams alert is a lender who asks you to pay for these fees out of your pocket and upfront.

Do loan companies check your bank account?


Yes, lenders will often check your bank statements when deciding whether to approve you for a loan, especially if you have bad credit. You will also be asked to provide your bank account details so that the lender will know where to deposit your loan.

Why do I keep getting emails about loans?


If you have shown interest in a loan with a lender, they likely asked for your credit report. The credit bureaus that issued these reports will code and store your information. Any legitimate business lender can buy a list of clients that have applied for the same or similar loan products from credit reporting agencies.

Once these lenders receive your information, they will use it as a lead and send you their offer in the mail to persuade you to borrow from them. While not strictly illegal, this is still an underhanded practice, so you should avoid such offers.

Do loan companies ask for money upfront?


Reputable loan companies will not ask you for money upfront. Instead, they will inform you of the fees relevant to your loan and add them to the loan amount you’re borrowing. If your lender asks for funds, prepaid cards, or gift cards upfront as collateral, it’s a clear indicator you are a target for personal loan scams.

About author

I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.

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