3 Signs of Personal Loan Scams

3 ways to spot personal loan scams

Scammers target people looking for personal loans by posing as legitimate lenders. Instead of giving you the funds you applied for, they steal your money or your identity and leave you worse off than you were before you submitted your loan application.

Here are three ways to spot personal loan scams so this doesn’t happen to you:

1. Guaranteed approval

Any lender promising guaranteed approval is an immediate red flag. Legitimate lenders will always review your application first and carefully check your credit before making an offer to thoroughly assess your ability to repay.

Scammers, on the other hand, often use language like “no credit check” or “100% approval rate” on their websites to lure in desperate borrowers. No matter how badly you need cash, avoid these offers since they might end with you losing money or personal information.

Avoid lenders that skip the credit check

Real lenders always check your credit before approval. Promises of “no credit check” or “instant approval” are signs you’re speaking with a scammer or a predatory lender.

2. Upfront fees

“One of the most common red flags that indicates a personal loan might be a scam is if there is an upfront or processing fee,” said Charlie Moore, chief consumer digital safety adviser at Aura. “Oftentimes, scammers demand payment before loan approval or disbursement, while real lenders deduct legitimate fees from your loan amount afterwards.”

So, be skeptical if a lender asks you to pay a fee before you get the loan. These scam fees could show up as processing charges or application fees that must be paid via wire transfer, gift card or cryptocurrency. Legit lenders charge fees like origination fees, but these are deducted from your loan after approval or built into repayment terms, not demanded upfront.

3. Unsolicited loan offers

“If you receive a cold call, email or text urging immediate action to apply for a personal loan, this should raise immediate concern,” Moore said. Scammers often use unsolicited offers to collect personal details or trick you into paying bogus fees.

In many states, lenders face restrictions on sending unsolicited loan marketing, so a random preapproved offer can be a sign that something’s off. If you receive one, ignore it, research the lender independently, and stick to trusted sources when you need to borrow.

Verifying lender legitimacy

Before taking out a loan and sharing any personal or financial details, make sure the lender is licensed to operate in your state. Most states require lenders to register with a regulatory agency, and you can confirm this through your state’s banking or financial services department. Legit lenders should be transparent about their licensing, address and contact information.

You’ll also want to watch out for red flags like vague loan terms or pressure to act immediately, since a trustworthy lender will give you time to review documents and answer your questions. “No credible lender will pressure someone to act immediately or provide personal details in an unsecure way before reviewing terms,” said Ronnie Allan, head of personal lending and consumer credit cards at PNC Bank.

“Scammers are increasingly creating fake loan websites that mimic legitimate lenders to steal personal information,” Allan added. In these instances, he suggests that you check for subtle misspellings in the company name, the website’s URL, strange email addresses or mismatched branding. “Most importantly, if something feels off, it probably is.”

» FIND OUT: The warning signs of predatory lending

Protecting your personal information

Scammers often try to get sensitive details like your Social Security number, bank account information or online banking login. They might pose as legitimate lenders, send phishing emails or use fake loan websites to trick you into handing over data.

To protect yourself, only share personal information with verified lenders through secure channels. Use strong, unique passwords for financial accounts, enable two-factor authentication and avoid clicking suspicious links.

If you think your data has been compromised, Moore suggested saving evidence like screenshots, emails or call logs. He said you should then report the information to the Federal Trade Commission (FTC) at IdentityTheft.gov to document the fraud and start the resolution process.

“Additionally, you’ll want to file a police report, especially if instructed to do so by your bank or lender,” Moore said. “Also, make sure to freeze your accounts and set a fraud alert on your credit reports.”