June 15, 2024

Frauds

Personal loan scams take advantage of your economic vulnerability and might even entrap you in a never-ending cycle of debt. Discover ways to escape getting scammed while seeking a loan.

Loan me not: Widespread loan scams and methods to elude them

Since the outbreak of the pandemic, many people have been plunged into financial hardship. Unanticipated weather events, rising food and energy costs, and relentless inflation have strained household budgets and overwhelmed working households, with soaring interest rates in the majority of the Western world further exacerbating the situation. As expected, cybercriminals are lying in wait to exploit others’ misfortunes. In some circumstances, they resort to loan fraud.

Familiarising with Loan Fraud

Loan fraud manifests in various ways. Essentially, it dangles the bait of obligation-free loans to attract unsuspecting internet users. It’s especially prevalent during specific periods of the year. The Financial Conduct Authority (FCA), the UK’s financial watchdog, cautioned last December about a spike in loan fee fraud, revealing over a quarter (29%) of British parents have borrowed money, or plan to, in the lead-up to Christmas.

In the UK, loan fee fraud losses average £255 ($323) per victim. This is a potentially substantial amount for someone already grappling with bill payments. Particularly susceptible are young adults, elderly people, low-income families, and individuals with poor credit ratings. Scammers are well aware that these groups are among the hardest hit by the current cost-of-living crisis, so they’ve devised a variety of tricks to dupe users into parting with their money.

Examine the following schemes to bolster your online safety.

Main Loan Fraud Risks

There are several forms of loan fraud scams, each deploying slightly different strategies.

1. Loan fee (advance fee) fraud

This is perhaps the most prevalent type of loan fraud and usually involves a fraudster pretending to be a legitimate lender. They’ll offer an obligation-free loan but require a small upfront payment to unlock the funds. The scammers will subsequently abscond with your money.

They may attribute the fee to various reasons like ‘insurance,’ ‘administrative charge’ or even a ‘deposit.’ Sometimes, they may justify it based on your poor credit score. Normally, the fraudster will assert that it can be refunded. However, they’ll often demand it be paid in cryptocurrency, through a money transfer service, or even as a gift voucher, rendering it nearly impossible to recover any lost funds.

2. Student loan fraud

This particular form of loan fraud preys on individuals desperate to secure financing for their education and recent graduates burdened with tuition fees and other education-related costs. These schemes also involve attractive loan terms or even debt forgiveness, fake assistance with loan repayment, fraudulent promises to lower monthly payments, consolidate multiple student loans into a more manageable “package”, or negotiate with lenders on behalf of borrowers – all for upfront fees for these “services”. Unwary individuals are often conned into handing over their personal and financial details, which the scammers then exploit for identity theft or fraudulent purposes.

3. Loan “phishing” fraud

Some scams may entail the fraudster asking you to complete an online form before the loan can be ‘processed.’ However, this would hand over your personal and financial information directly to the criminals who can use it for more severe identity theft. This could be orchestrated along with an advance fee scam, leading to the loss of both money and critical personal and bank account information.

4. Malicious loan apps

In recent years, ESET has detected an alarming increase in malicious Android apps masquerading as legitimate loan apps. At the start of 2022, it reported 20 of these scam apps that had amassed over nine million collective downloads on the official Play store. The number of “SpyLoan” apps detections shot up by 90% between H2 2022 and H1 2023. And in 2023, ESET discovered another 18 malicious apps with 12 million downloads.

Figure 3 Apps that were available on official stores for iOS and Android in 2020
Fraudulent loan apps (read more here)

SpyLoan apps draw victims by promising hassle-free loans via SMS messages and on social media platforms like X (formerly Twitter), Facebook and YouTube. They frequently imitate the branding of authentic loan and financial services firms in an effort to lend credibility to the scam. If you download one of these apps, you’ll be asked to verify your phone number and then provide extensive personal information, including your address, banking information, and ID card photos, as well as a selfie – all of which can be used for identity theft.

Even if you don’t apply for a loan (which will anyway be turned down), the app developers may then start to intimidate and blackmail you into coughing up money, possibly even threatening physical violence.

5. Payday loan scams

These fraudsters target individuals in urgent need of cash, often those with bad credit or financial troubles. Much like with the other types, they promise quick and simple loan approval with minimal documentation and no credit check, exploiting the urgency of the borrower’s financial predicament. To apply for the loan, the scammer frequently asks the borrower to provide sensitive personal and financial information, such as their social security number, bank account information and passwords, using it for identity theft and financial fraud.

RECOMMENDED READING: 8 prevalent work-from-home scams to watch out for

6. Loan repayment fraud

Some scams necessitate more preliminary detective work from the criminals. In this instance, they’ll target victims who have already obtained loans. Posing as that loan company, they’ll send you a letter or email claiming you’ve missed a repayment deadline and demanding an additional penalty fee.

7. Identity fraud

Another slightly different method involves stealing your personal and financial details – possibly through a phishing attack – and then using them to secure a loan in your name from a third-party provider. The scammer will max out the loan and then vanish, leaving you to clean up the mess.

Protecting Yourself from Loan Fraud

Be mindful of the following warning signs to stay safe:

  • Promised loan approval
  • Demand for an upfront fee payment
  • Unsolicited contact from the loan company
  • Pressure tactics and a sense of urgency, which scammers of all kinds frequently wield
  • A sender email address or website domain that doesn’t tally with the company’s name
  • No fineprint provided about the loan itself

Also, consider implementing the following precautions:

  • Investigate the company claiming to offer the loan
  • Never pay an upfront fee unless the company issues an official notice delineating the loan terms and justification for the extra fee (which you must accept in writing)
  • Always ensure your computer is equipped with anti-malware and use multi-factor authentication (MFA) to minimise the risk of data theft
  • Do not respond directly to unsolicited emails
  • Be cautious about over-sharing online – scammers might be combing social media for opportunities to exploit your financial circumstances