ACFA-Cashflow Seven methods for identifying personal loan frauds

According to the Federal Trade Commission, consumers would collectively lose over $3.3 billion to fraudulent tactics in 2020. Potential scammers target people in greatest need or those most inclined to accept a bogus offer. If you’re not vigilant, you may find yourself the victim of a personal loan scam, in which you may lose money.

You may learn how to determine the legitimacy of a lending firm and prevent being a victim of fraud. The following are frequent indicators of possible loan fraud.

Seven methods for identifying personal loan frauds

While this is not an exhaustive list, the following are some of the most prevalent indicators of a personal loan scam:

Your lender is unconcerned about your credit history.

The lender is not authorized to do business in your state.

A prepaid credit card is required by the lender.

The lender contacts you, writes to you or knocks on your door.

The lender does not have a physical location.

The lender puts you under duress to respond promptly.

The lender is not forthcoming with information concerning its costs.

1. Your lender is unconcerned about your credit history.

Genuinely trustworthy lenders make it quite apparent that they will examine your credit, sometimes obtaining reports from all three main credit agencies (Equifax, TransUnion, and Experian). Most lenders want to know whether you have a track record of paying your bills on time and in full in order to ensure that you will be diligent in repaying a loan of a few hundred dollars.

Criminal enterprises are unconcerned with your creditworthiness. They often target high-risk borrowers who are prone to default on loan payments and incur exorbitant late fees and penalties.

There are trustworthy lenders who provide bad credit loans, judging your eligibility based on factors other than your credit score. However, these lenders would normally want details about your income, occupation, and education before making a loan offer.

Takeaway: Conduct due diligence and ensure that you’re dealing with a lender that is interested in your prior financial history, even if it’s not stellar.

2. The lender is not licensed to do business in your state.

Lenders and loan brokers must register with the Federal Trade Commission (FTC) in each state where they do business. Verify the lender’s website for a list of states in which it is legally permitted to do business. If a lender is not registered in any state, you may be dealing with loan fraud.

Checking for registration is a critical step in determining if you’re working with a real firm and distinguishing the scams from the legitimate ones.

Takeaway: Confirm if lenders are registered in your state prior to submitting financial and personal information. If they are not licensed to operate in your state, they lack the right to lend you money.

3. The lender requires the use of a prepaid card.

Certain fraudsters have been known to request borrowers to provide prepaid debit cards or gift cards, saying that they are required for insurance, collateral, or fees. This is a swindle. Legitimate financial organizations may charge an application cost, appraisal fee, or credit report fee, but these fees are taken from your loan.

Prepaid cards are a major red flag. It is almost as untraceable as cash, and you will be unable to declare it stolen if you give it to a lender.

Takeaway: Never engage with a lender using an untraceable payment mechanism such as a gift card, cryptocurrency, or prepaid debit card. Accept wire transfers, direct deposits, or checks that may be deposited directly into your bank account.

4. The lender contacts you, writes you or knocks on your door.

If you get a loan offer through phone, mail, or even door-to-door solicitation, be suspicious. According to the FTC, it is prohibited for businesses to provide loans over the phone in the United States and require payment before they deliver.

The takeaway is that a professional lender will not contact you through phone, direct mail, or door-to-door solicitation. Seek lenders that advertise in conventional print and internet media.

5. The lender lacks a physical location.

Each lender in whom you are interested should have a physical location. Just in case, run it through Google Maps. Certain organizations that operate personal loan scams may provide locations that are really empty properties, therefore it is critical to check this information.

If you discover no evidence of a physical location, you should avoid the lender. Numerous fraudulent firms are untraceable in order to escape legal repercussions.

Takeaway: Never do business with a firm that cannot give a physical address, and always check the validity of the address before proceeding.

6. The creditor forces you to reply quickly.

Avoid succumbing to the urgent appeal. It’s a personal loan fraud if you have to sign up for one within a day since the offer has expired.

Lenders who use such high-pressure techniques may be concealing something. It might be a ruse to coerce you into making a hasty choice.

Takeaway: Avoid offers that need you to make a decision immediately. You should have many days, if not weeks, to accept or decline a loan offer.

7. The lender’s costs are not clear.

Scammers would avoid publicly displaying their fees on their websites or exposing them when questioned. Additionally, they may inform you that you have been authorized for a loan and then charge you an upfront fee.

Fees that are added after the loan is approved are a red sign. The FTC recommends that you avoid any business that uses this approach, especially if you are informed that the upfront payment is for “processing,” “insurance,” or “paperwork.”

Takeaway: Legitimate lenders may charge application, credit report, or appraisal costs, which you will be aware of before submitting an application since legitimate lenders will inform you of these fees prior to submitting an application. If there are any unexpected costs, it might be a fraud.

Loan schemes that are often perpetrated

The majority of loan scams are designed to either take money upfront or to impose loan conditions that are so onerous that borrowers would incur late fees or other expenses. Several prominent ones include the following:

Scammers may attempt to get you to take out a low-cost loan in return for hundreds or thousands of dollars in upfront fees. They will discontinue contact after collecting these costs without giving any money.

Fraudsters offer cash without doing a credit check: While some legal personal loan lenders examine factors other than your credit score when accepting you for a loan, other scammers promise funds without conducting a credit check. This is a warning indicator since your credit history is a significant component in determining your risk as a borrower.

Private student debt forgiveness scam: The federal government provides federal student loan forgiveness schemes. If a firm contacts you with the promise of forgiving your private student debts, it is almost always a fraud.

Debt consolidation is not a scam. It may help you simplify the process of repaying your debt and can ultimately save you money. If a debt consolidation organization is forceful or encourages you to stop communicating with your creditors, there is a good probability it is attempting to defraud you.

Who is most susceptible to loan scams?

Scammers often target those who are either naive or may have difficulty obtaining a loan via traditional channels. Borrowers with a high level of debt, the elderly, and those with poor credit are particularly vulnerable to these sorts of frauds. For example, no-credit-check loans may be especially appealing to persons with low credit, since bad-credit loans from respectable lenders may carry exorbitant interest rates.

If you are considered high-risk, be suspicious of any organization that promotes a loan product that seems to be too good to be true for your position. If in doubt, verify if the firm is licensed in your state or call the attorney general’s office in your state.

What to do if you believe you have been duped

While no one likes to believe they have been a victim of fraud, it is possible and can occur. The good news is that if you have been targeted, you may take many measures, including the following:

Collect all of your documents. If you have emails, screenshots, or other supporting material, get them together to offer to authorities when the time comes to contact them.

Make contact with police enforcement in your area. You will have an official record if you complete a police report.

Contact oversight firms. Following your encounter with police enforcement, you should notify your state attorney general’s office, the FBI, the Federal Trade Commission, and the Better Business Bureau. These authorities can better assist and protect other customers with this information.

Discuss it with your family and friends. As fraudsters’ strategies improve, it is critical to assist others in remaining informed.

Put a fraud warning on your credit report with one of the main credit bureaus. If you place an alert with Equifax, Experian, or TransUnion, the alert will be sent to all three companies. A fraud alert is not the same as a credit freeze; it informs creditors that you may have been a victim of fraud and that they should contact you to verify your identity before extending new credit.

How to choose a reputable lending firm

Even if your credit score is below average, several firms provide valid loans. Begin your search for a suitable lender by following these steps:

Conduct a search for contact information. The lender’s phone number, email address, and physical location should all be prominently displayed on the website, even if the lender is only online.

Conduct an investigation of internet reviews. Customers that leave reviews on Google and Yelp will have the most accurate representation of their experience dealing with a lender.

Consult the Better Business Bureau for further information. The BBB is an excellent resource for determining a lender’s trustworthiness, as well as for client feedback.

Ascertain that it is registered. Before making loans, legitimate lenders must register with state organizations. If you have any doubts about the safety of a lender, call your state’s attorney general.

The gist

If you need a personal loan, do research and compare different lenders to ensure you are receiving the best possible rate from a reputable provider. Even if your credit is less than ideal, there are several personal loan lenders that provide loans to consumers in need regardless of their credit history. Avoid being deceived and instead select a firm that is eager to work with you where you are.