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How to identify online loan scams

How to Identify Online Loan Scams

Updated on June 18, 2024


An online loan can assist you in covering unexpected expenses from home when you lack sufficient funds. Online loans have risks, just like any other loan. You should be aware of these risks before deciding to borrow. When you have a financial emergency, you need to act quickly. But be careful because you might become a victim of online scams when trying to get a loan.

Be careful not to choose the wrong lender. If you do, you could lose much money throughout the lifetime of your loan. Even worse, you could lose the asset you used as collateral.

While looking for thoughtful choices, it's essential that you also make sure the lender you choose is genuine. To avoid online scams when getting a loan, learn about the signs and common internet loan scams.

The Lender Requests Fees Upfront

Your lender may subtract an origination fee from the amount they lend you to cover administrative and processing costs. Such upfront fees are valid, typically 0.5% to 1% of your total loan amount. However, some loan scammers ask for considerably high origination and administrative costs from the borrowers before personal loan disbursement.

On questioning about the same, they might also provide misleading information regarding the conditions and fees of the loan. Hence, being cautious is best whenever a lender demands payment for "paperwork" or "processing" your loan.

The Lender Is Not Registered in Your State

Verifying registration is vital to help you ensure you're dealing with the right online lending company. Lenders and loan brokers must register in the states where they operate, says the FTC. You can visit the lender's website to find where they can legally do business.

You might be dealing with loan fraud if the prospective lender does not disclose their registered states. Check if your lender is registered in your state before giving them your banking and personal details. They don't have the right to lend you money if they don't operate in your state.

The Lender Has No Physical Address

The lender you're considering should be registered in your state. They should also have a physical location. This physical location should be able to provide details about their services. Only do business with companies with a physical address, as scammers may provide incorrect or nonexistent addresses.

So always make sure the address is accurate before moving further. You can do this using Google Street View or ask someone nearby to the lender's location to confirm. Rule out the lenders for whom you don't find any sign of a physical location.

The Lender Does Not Require a Credit Check

Your creditworthiness decides the loan terms. A genuine lender will only approve a borrower after confirming their repayment ability. If the lender asks for your Social Security or bank account number but doesn't check your credit history, be cautious. That can be an attempt to charge your account with unauthorized fees.

However, some reputable lenders offer online loans for bad credit and don't require to run credit checks on you. Discover lenders who assess more than just your credit score to decide if you can repay the loan.

The Lender Requests Unusual Forms of Payment

When you borrow a loan, repay it directly to the lender. Don't comply if your lender requests an uncommon mode of payment, such as a gift card or an amount sent directly to a person.

Beware of lenders who want loan payments through wire transfers. It's hard to get your money back if they are scammers. Ask lenders if they take automatic debit, online payments, phone payments, or checks you can send by mail. You should be clear about completing loan transactions because a trustworthy lender will explain the procedure.

The Lender Is Not Transparent About Its Fees

Online loan scammers won't disclose the fees they charge on their website, nor will they be transparent about them when questioned. Some lenders do not display all fees on their websites.

However, they will inform you about these fees when you apply for a loan. They will also disclose the fees to you before you sign the loan agreement.

It's a red flag if a lender imposes additional costs after loan approval. Deductions from the loan amount you weren't aware of can constitute fraud.

The Lender Solicited Your Business

Legitimate lenders only contact you if you've contacted them before by making an online inquiry, phone call, or perhaps visiting their branch. They never make cold calls, write letters, or knock on potential clients' doors to ask for business.

The FTC asserts that it is unlawful for companies operating in the United States to call prospective customers and request that they make a loan or credit card payment before even applying for one. If a lender contacts you first, be cautious whether it is in person or online. They might be attempting to deceive you into revealing your private financial information.

The Lender Pressures You to Act

Generally, personal loans offered by financial institutions have standardized rates and terms. Lenders sometimes offer temporary deals, such as removing certain fees, to all applicants for a limited time. This allows borrowers to compare different options.

You might be working with a loan scam company if you feel rushed.

Starting the loan paperwork without thoroughly discussing the loan terms and fees can create stress and lead to financial error.

Select banks with special deals and loans with the same application, rates, and terms for all customers. Genuine lenders won't push you to borrow money or make you an "offer" with a deadline.

The Lender’s Website Is Not Secure

Scamming websites often confuse you by using names and logos similar to legitimate companies and building professional sites. A fraudulent website could utilize the personal financial information you enter to take your money. To avoid this, the least you can do is to look for the little padlock icon and the "https" in your browser's address bar to ensure you're on a safe connection. You can also search about the company online if you still need to figure it out through third-party online sources.

The Lender Doesn't Provide Anything in Writing

Lastly, every loan proposal must be in writing. It should state all the conditions and online loan monthly payments you and the lender agreed upon for loans with fixed interest rates. Some lenders who If someone contacts you over the phone with an offer, you may immediately sense you're dealing with a loan fraudster.

Additional Warning Signs of Online Loan Scams

We have so far explored ten of the most typical warning signs that could indicate an online loan scam. Still, there may be additional indicators that you need to watch out for. When comparing lenders, keep the following other warning signs in mind too:

  • Excessive negative customer reviews and ratings can be seen on several internet review sites.
  • A lender requests prepaid debit cards or other untraceable payment methods as collateral.
  • Inconsistent email addresses of the lender throughout the internet.
  • Plenty of spelling and grammatical mistakes in the lender's correspondence.

6 Most Common Types of Loan Scams

Most loan scams try to get money upfront or impose stringent loan terms that make borrowers pay late penalties or other expenses. However, there are more that you, as a borrower, need to watch out for. So, here are the six most popular loan scams that fraudulent lenders use to trap unwary borrowers:

Advance-Fee Loan Scams

These scams involve a fraud online loan company that misleads potential borrowers by guaranteeing them a loan on payment of a certain amount as upfront fees. Typical words used to describe these payments are "application fee," "processing fee," or origination fee."

Scammers want you to pay fees using unusual methods. These methods include Apple gift cards or prepaid debit cards. They will ask for payment after they get your attention. Some people may ask for payment through fast delivery, courier service, or wire transfer to avoid being tracked by angry customers.

You can find the advertisements of such fraud loan companies on the Internet or in the classified section of local newspapers or magazines. Sometimes, they'll use a name belonging to a reliable company or a close variation of it.

Pre-approved offers require your acceptance. Pre-approved offers mean you can apply, but you still need to follow the usual application process. It is important not to confuse them with scams.

Phishing Scams

We can't skip mentioning "phishing" when discussing online loan scams. It's a fraudulent practice where attackers trick users into disclosing personal information or downloading software like ransomware. The fraud loan company uses email or other forms of communication and misrepresents itself as a reputable entity or person.

Scammers frequently design their emails to mimic messages from trusted sources. They use attention-grabbing language, like issuing a warning that your accounts will be frozen if you don't respond promptly. The scammer can seize your money or identity once they access your data before you even realize what's happened.

Government Imposter Scams

In this scam, a person pretending to be from the government contacts you. They may reach out to you by phone or email. They claim to work for a federal or state government. They might use complicated legal terms to get your personal info or money, or you could face serious consequences.

Sometimes, a loan company falsely claims it can guarantee approval or grant in exchange for a fee. They might request that you make a payment as "insurance" for the grant or loan that they have offered. Scammers use fast services like couriers or wire transfers to hide their identity and location. They ask for money to be sent through these services.

Fake Check Scams

When someone, whether an individual or a company, contacts you and asks you to deposit a check, cashier's check, or money order into your account and then wire the funds back to them as payment, this constitutes a fraudulent check scam. If you comply with all the instructions, the check they send you will eventually bounce. When you realize you've been scammed, the con artist will have already walked off with your money.

Debt Settlement Scams

Debt relief companies say they can help you cancel or reduce your debt. They negotiate with your creditors and convince them to modify their agreements with you.

There are trustworthy debt settlement firms. However, there are also fake ones that deceive people and steal their money.

These fake firms make false guarantees. Suppose you can prove your ability to repay. In that case, debt consolidation with a lower-interest personal loan can be your right option.

Donation or Charity Scams

These scams are the most unforgiving type of all. Here scammers pretend to represent charities and take advantage of empathetic people. Nowadays, it's harder to tell apart genuine charities from newly formed ones due to the abundance of fundraising activities. Hence if someone or a group is asking for money, take the time to do some research on them.

Who Is Most at Risk for an Online Loan Scam?

Online loans from direct lenders have become one of the easiest ways to get needed funds for people facing financial issues or those whose loan applications are rejected by traditional banks. These people have unfortunately become the main target of scammers. Online loans can be a scam for people with a lot of debt, older people, and those with bad credit. Scammers target these most vulnerable individuals.

People with bad credit may choose payday loans because they are easy to get, even though they have high interest rates. Unfortunately, scammers purchase databases of individuals who search or apply for online loans, as they easily deceive them.

Suppose you fall under the high-risk group of borrowers and come across a financial product that seems too good to be true. In that case, you should be alert and take all possible steps to protect yourself from a loan scam.

How to Protect Yourself From Loan Scams

Of course, everything we’ve talked about in this article will only help protect you from the majority of scams. Unfortunately, scammers are being more and more sophisticated every day, and are finding new ways to appear more legitimate. In other words, you may not see any obvious warning signs and still fall victim to a loan scam.

To better protect yourself, here are a few handy tips to follow when you’re assessing whether to accept or decline a loan offer.

Tip 1: Do Your Research

When you get a call from a loan company, you can first check their identification on Google and give the listed phone number a call to make sure it's them before you send any information. Also, verify the lender's registration status in your state.

Tip 2: Just Because It Looks Official Doesn’t Mean It Is

Making websites appear professional, is now simpler than ever and requires little to no coding knowledge. Scammers can easily create a website.

They pretend to have a business. They also send fake emails. Their goal is to trick people into replying to loan offers that are too good to be true.

Tip 3: Read the Contract

Take the time to review the loan offer contract you receive from the lender, even if it is lengthy and tough to comprehend. Ensure that you comprehend the agreements and verify whether any crucial information requires inclusion or correction. Remember, documents, including contracts, are simple to replicate, and scammers may be using documents they've copied from another company. So never assume something is legitimate just because it appears official.

Tip 4: File a Consumer Complaint Online

You can also file a fraud report online with the FTC by calling 1-877-FTC-HELP. Please provide your name, contact details, the amount of money you lost, and how the fraudster contacted you. Moreover, please provide any information you have about them and explain the reasons why you believe you were scammed.

What to Do if You Think You’ve Experienced Online Loan Fraud

It is still possible to become a victim of a personal loan scam even after taking all the precautions. It's not your fault, but some scammers are that good.

Here are some steps you can follow to handle the situation if you've been scammed:

Don’t Pay Any More Money

This one is a no-brainer, but many scammers could persuade you to send more fees to be able to borrow more money from them. These fees are often referred to as fee fraud and have recently become more prevalent on internet platforms. Reputable and genuine lenders don't ask for additional costs to disburse the principal amount. Hence, consider this a warning sign and immediately stop the deal with that online lender.

Collect All the Pertinent Information and Documents

Whether it may be the agreement you've signed, email conversations, letters, or calls, make a point to save all the documents and communication you can with the lender. In addition, keep track of your bank account statements.

Protect Your Identity and Accounts

Suppose you've shared confidential data like your Social Security number or bank details. In that case, you should time to time check your credit to ensure that nobody has attempted to steal your identity. To view your credit reports from all three credit agencies for free, visit Also, think about freezing your credit record if you find anything suspicious.

How to Report Online Loan Scams

For details on how to file a complaint for fraud, get in touch with your local police station. Ask for a copy of your report because you could need it to prove the occurrence.

Simultaneously, send a fraud alert to creditors, informing them you might be a fraud victim. They should contact you to confirm your identity before extending further credit.

Experian, TransUnion, and Equifax are the three main credit bureaus. If you file a complaint with one of them, it will alert the others. You should also inform all the banks and financial institutions you work with about the possibility that you were the victim of a scam and, if possible, get new bank cards.

Check Your Insurance Coverage and Other Financial Recovery Steps

Check your insurance policy to see if it covers fraud losses or pays for identity theft expenses. The coverage may only include your initial investment and not the expected amount. Alternatively, it may only cover expenses related to identity theft.

Get all the answers about the services provided, the fees involved, and how you will be charged in writing if you want to engage a lawyer or company to recover money lost to fraud.

How to Spot Legitimate Loan Companies and Online Loan Offers

Some legitimate lenders provide loans you can qualify for even if your credit score is below average. However, you should still check for specific aspects that prove you're dealing with a genuine lender.

A legitimate lender usually has the following:

  • Good rankings from the Better Business Bureau (BBB) or other official ratings
  • Consistent positive ratings on the web
  • Proper grammar and professional communication
  • Uniform website, phone number, and physical address across the Internet that is easy to verify
  • The verification should be possible without receiving any malicious URL in an email or text message.


Online loans are easy and convenient for paying unexpected bills. Make sure you're dealing with a trustworthy lender, not an online scammer trying to take advantage of your situation. You might be a victim of a personal loan scam if a lender contacts you first. This could happen if the lender asks for upfront fees or makes an offer that seems too good to be true.

Scammers can be challenging to spot, whether they're trying to steal your money, your identity, or both. Knowing the signs of online loan scams before you sign anything will help you act responsibly.

Scammers can be challenging to spot, whether they're trying to steal your money, your identity, or both. Knowing the signs of online loan scams before you sign anything will help you act responsibly.