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- Experts from SoFi, LightStream, and J.D. Power shared insights with Business Insider on how to sidestep loan frauds.
- Notable scams comprise soliciting money upfront, offering guaranteed loan approval, or masquerading as a loan issuer.
- Vigorous scrutiny of probable lenders can prevent you from falling for deceptive deals and discern genuine offers.
Contents
Getting started
If you are planning to secure a personal loan for various reasons including debt consolidation or financing a home improvement plan, affirming the credibility of the lender whom you are seeking to borrow from is critical.
Growing instances of loan scams and their ramifications
Con artists may attempt to swindle you by requiring money upfront or assuring guaranteed loan approval. They might pretend to be a genuine organization and present lower rates or costs than the authentic lender advertises on its online platform.
You can shield yourself from personal loan frauds and the damage they may cause with a range of precautions. Here are four suggestions on how to identify and evade scams to borrow funds without trepidation.
Prevalent forms of loan scams
Advance fees loan scams
Some businesses offer loans or credit cards to applicants irrespective of credit history, but they require a fee for “processing” or other services. Advance fees loan scams victimize people with poor credit or those who could not secure loans for various reasons. These fraudsters lure victims with online ads or cold-calling, often purchasing information about individuals who have applied for loans online.
Dangers of phishing and identity theft frauds
In the cybercrime known as phishing, criminals pose as a trustworthy entity, like a corporation or financial institution, to trick victims into voluntarily providing personal and sensitive information.
A typical phishing email pretends to be sent from your bank. If you reply to such an email or click on any included links, you may unwittingly grant criminals unrestricted access to your financial information and banking account.
Counterfeit lender websites
Genuine lenders use diverse techniques to persuade you to borrow from them. You might come across an online ad or receive an email from a lender. Still, not all companies employ each of these tactics. Hence, if a lender emails you about a loan offer, it’s possible that a scammer is misusing a real company name to contact you.
According to Jim Houston, the Managing Director of Lending and Automotive Finance at J.D. Power, fraudulent offers are less prevalent in the personal loan sector than other loan types, like auto loans. Nonetheless, scams do occur, so understanding their indicators can prevent you from divulging personal data to a fraudulent company.
Red flags for loan scams
Demands for upfront payments
Many fraudsters employ the classic strategy of offering a loan contingent on you sending them money first, promising to forward you funds once they receive that initial payment.
“Avoid any scenario that requires you to transfer money to the lender prior to a transaction,” advises Jim Houston. “Reliable lenders won’t suggest, ‘You transfer me money now, and then I’ll forward you money later.’ That’s not how it operates.”
Though some lenders may levy administrative or origination fees when you take on a loan, these fees typically come from the loan proceeds and affect only the total sum you’ll receive.
Assurances without conducting credit checks
Nearly all lenders implement some form of screening process before offering a loan. Credit score requisites vary among lenders, but most take your credit score into account when deciding to approve a loan. Many lenders perform a soft credit inquiry to display personalized rates.
Be cautious if a lender seeks minimal information and promises approval, disregarding your creditworthiness or other fiscal aspects. Key information a credible lender might inquire about includes:
- Your full name
- The purpose of the personal loan
- Contact details, including address, phone, and email
- Date of birth
- Social Security Number
- Employment status
- Whether you are a homeowner or renter
- Monthly housing cost
- Your salary
- Household income
“Reputable lenders will undergo an underwriting process, especially for personal loans because they are unsecured debt,” states Brian Walsh, a Certified Financial Planner practitioner and Financial Planning Senior Manager at SoFi. “Approval decisions are based on the lender’s confidence in the borrower’s ability to repay. An informed decision requires examination of factors such as credit score, repayment history, and debt-to-income ratio. Situations where these checks don’t occur are highly questionable.”
Shielding yourself
Examine lenders extensively
Prior to contemplating securing a loan from any establishment, first make sure it’s credible. Peruse reviews on external sites, verify the corporation’s Better Business Bureau rating, and inquire about the company’s reputation from acquaintances and relatives.
If you’re seeking detailed lists that contrast different loan types from numerous lenders, consider looking at our guides on the top online personal loans, outstanding small personal loans, and premium personal loans for poor credit.
“Primarily, understand the interest rates and costs,” states Todd Nelson. “Oftentimes borrowers feel that if the lender failed to adequately clarify rates and charges, they might have been exploited. Doing your research is always incredibly crucial, and any dependable lender is going to be completely transparent about their rates and fees.”
Ensure that the rate promoted in your offer aligns with the rates marketed on the lender’s website. You may need to provide some details to see what rate you are eligible to receive.
In addition, inspect the charges listed on the offer. Some lenders don’t impose fees, but others may charge origination fees, late penalties, or early repayment fees, so it’s vital that the fees in your offer equal the ones mentioned on the company’s website.
See if you qualify for a personal loan with no effect on your credit score >>
Avoid paying fees upfront
The effective methods to evade a loan fraud are to exhaustively scrutinize the lender, never hand out any funds in advance to secure a loan, question guarantees of assured approval, and exercise caution with how lenders approach you with offers.
FAQs
To confirm if a loan proposal is authentic, thoroughly examine the lender. Look for reviews and authenticate their contact details. Trustworthy lenders will also be registered in the states where they operate their business.
Fraudsters request for fees in advance under the pretense of “processing” or “insurance,” which isn’t a conduct employed by reputable lenders.
If you’ve divulged delicate information with a suspected fraudster, promptly alter any compromised passwords, notify your bank, and keep an eye on your credit report for any unauthorized activities.
Yes, applying for loans online is secure with trustworthy lenders. Make sure the website is secure (look for “https” in the URL), and never share sensitive information over unprotected email or messages.
You can report loan scams to the FTC, your state’s Office of the Attorney General, and the IC3. Providing detailed information can help avert future scams.
Ryan Wangman, CEPF
Credits Reporter
Ryan Wangman was a reporter at Personal Finance Insider reporting on personal loans, student loans, student loan refinancing, debt consolidation, auto loans, RV loans, and boat loans. He is also a Certified Educator in Personal Finance (CEPF).
In his past experience writing about personal finance, he has written about credit scores, financial literacy, and homeownership. He graduated from Northwestern University and has previously written for The Boston Globe.
Learn more about how Personal Finance Insider selects, rates, and covers financial products and services here >>
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