Personal loan scams: What they are and how to protect yourself

What is a personal loan scam?

A personal loan scam is a fake offer to loan you money that’s actually designed to steal your money or personal information. These scams can occur via phone, email and even text message. They may offer you funding, but require upfront fees for “paperwork processing,” then take the money and never give you the loan. Or after you’ve given the scammer your Social Security number for the fake application, they steal your identity and open accounts in your name.

Any time you receive an offer for a personal loan you didn’t apply for, it’s almost certainly a scam. This differs from predatory lending, which are loans with expensive terms like very high interest rates or massive penalties for late payments.

The Federal Trade Commission warns people never to answer phone calls about loans you didn’t apply for, without exception. This warning includes not even responding to opt-out of communications — just block the number.

Even if the number on your caller ID seems legitimate, it’s still wise to be wary. The practice of “spoofing,” or impersonating a real phone number, is so widespread.

How personal loan scams work

Personal loan scams can target many people in the hopes of luring a few or target a particular person based on a vulnerability. “Scammers use a variety of tactics,” says Matthew Stern, CEO of CNC Intelligence, a company that helps consumers get their money back after being scammed.

Unfortunately, he says, “scammers become skilled at learning what our vulnerabilities are and how to exploit them.” Personal loan scams target people of all ages, such as broke college students to elderly citizens living on a tight budget, and seek to gain access to personal information as a way to exploit people and scam them out of money.

“Once a scammer obtains your personal information, like family members’ names, pets’ names or public information such as your address or contact details, they can use them in order to try and gain access to your accounts, or impersonate you to your loved ones,” Stern explains. “They can also use recordings, voice and video, to impersonate you via AI.”

People fall victim to scams because we make emotional and often impulsive decisions, usually under pressure, says Stern. The more pressure a scammer puts on us, the more likely we are to make a quick decision without thinking it through completely.

Also, scammers don’t want people to have time to speak with a loved one or a trusted advisor. They bank on people acting first and thinking later in their eagerness to get out of financial duress with a personal loan. “Never make decisions under pressure. It is always best to speak with a financial advisor before making any financial decisions,” Stern advises.

Common types of personal loan scams

A few types of personal loan scams exist, but they have the same general tactics: An offer of money you didn’t ask for in exchange for fees or your sensitive information. Keep an eye out for these common loan scams:

• Advance fee loan scam: This scam occurs when a lender “promises” a personal loan after you pay various upfront fees. In cases like this, says Stern, the scammer’s only goal is to get the upfront fee and they will likely target their victims again for another fee, for another reason.
• Government grant scam: Government grants and loan scams are where a person calls and guarantees us a grant or loan from the government in exchange for a seemingly small fee. Unfortunately, the scammer is aiming to get the fee while the entire grant or loan is non-existent.
• Online personal loan scam: These scams may come from online ads for fast, guaranteed approval that people click on and become lured into the scam.
• Wire transfer and gift card scams: Some scammers request that you send money via wire transfer or gift cards as an upfront fee for a personal loan. Money wires and gift cards can be difficult to trace, so scammers use this method frequently.

Personal loan red flags

There’s a lot to know before taking out a loan, but the best rule of thumb to remember is this: If you didn’t directly apply for a personal loan, the “too good to be true” loan offer in your inbox is most likely a scam. It’s also helpful to be aware of the following red flags:

• “Guaranteed” approval
• Loan offers you didn’t apply for
• Logos that are very similar to large, well-known banks
• Requires vague upfront fees
• High-pressure tactics
• Requests for sensitive information, like your Social Security number
• Lack of a physical address or phone number

Protecting yourself from loan scams

The first step to avoid a scam is to not engage with any unsolicited contact, Stern advises. “Don’t open text messages or emails from unknown senders. If someone who you did not contact first calls you, hang up right away or simply don’t answer,” he says. “Don’t start conversations with people that contact you out of the blue, especially if they’re reaching out about financial opportunities.”

Before moving forward with any personal loan, verify the credentials of any bank or financial institution you use for a loan. You can verify authenticity by looking up the company’s credentials on the Nationwide Multistate Licensing System’s website (NMLS).

Further, Stern suggests the following security measure: type the website address into the browser rather than copying and pasting it. “Scammers can use hyperlinks and website addresses that look the same as legitimate websites, but are actually cloned sites.”

» LEARN MORE: How to avoid debt relief scams

What to do if you’ve been scammed

It can be difficult to get your money back if you become a victim of a scam. But you can take steps to protect your identity and potentially recover any lost funds. Here’s what to do:

1. Immediately stop communicating with the scammer.
2. Report the crime to the local police and Internet Crime Complaint Center.
3. Contact your banks, credit card issuers, mortgage lender and other financial institutions you use to inform them of the scam so they can be aware of future suspicious account activity.
4. Freeze your credit profile with TransUnion, Experian and Equifax to protect your identity and credit.
5. Change financial account passwords.

The FTC also outlines what you should do, depending on how you were scammed and what materials you gave to the scammer.