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A personal loan can also be known as an advanced fee loan. Not all advance fee loans are scams. In this article, I will help you identify how to spot personal loan scams and how to be aware of them.
Statistics
Credit statistics as reported by Credit Donkey stat
According to FICO’s data, which is a score ranging from 300-850, 11.7% of the population has a score of 549 or less. A score of 550 or less is considered weak.
An alternative score known as a VantageScore developed by the three major credit bureaus, which also has scores ranging from 300 to 850 has reported an average rating of 673. A score of 673 is considered fair.
I gave these statistics to help you see that the people who do the personal loan scams target those people with the lower credit scores.
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Is this the answer?
When someone is having financial hardships, they may be more likely to fall for one of these scams. A personal loan to get them through the next payday or help buy a car sounds like an answer to a prayer.
In reality, a personal loan scam will harm your credit score in the long run, and you may end up in a debt counseling program.
In the United States and Canada, it is illegal for a company to promise to you on the phone you will receive a loan if you pay money upfront.
What are personal loan scams?
In this day and age, the paycheck doesn’t go far enough. You may live from paycheck to paycheck. You have kids at home that need food on the table.
You make enough money to keep the family going, but your car breaks down. To fix it will cost more than the car is worth. You need a new car. You receive an advertisement in the mail that says you are guaranteed a loan without any questions asked. Bad credit doesn’t matter to this company. The offer comes at the perfect time.
You call the company, and they tell you that you are eligible for a loan of $10,000.00. You know this will go a long way toward a used car. The company suggests you wire them $150 to cover the cost of financing. You just got paid and can take this money out of the $10,000, so you wire them $150.
They are going to send you papers for the loan by email to sign and get back to them as soon as they receive the money. But after you wire the money, you never get the documents or the loan.
7 Red flag signs of a scam
1. Offer by phone
When a company calls and offers you a loan on the phone, it is a red flag. As I mentioned above, this is illegal in the US and Canada.
2. An offer of a low-interest rate
You know your credit score is low and the car dealership has said your interest rate will be very high. Your phone offer states you will receive a low-interest rate. Clearly a red flag.
3. Requesting money upfront
If a company requests for upfront money, it is a scam. A reputable and honest company will take the fees out of the loan amount. You will not be required to pay cash out of pocket.
4. Promise a loan without a credit check
Reputable lenders require a credit check before lending you money. The sign of no credit check is a red flag.
5. Pressure sale
The company expects you to make a decision immediately. You request time to research the company online, and the company tells you the loan offer will not be available after you hang up the phone.
6. A promise of unsecured email contracts
A reputable company will require documents to be sent by secure data transmission. A pledge of unsecured data is a red flag.
7. Name very similar to a larger company
The company name sounds familiar but closely imitates a larger company.
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Gut feeling
Remember the saying, “if it is too good to be true, then it is.” Follow your instincts and watch out for the scammer who will take your money and run. A personal loan scam is just one type of fraud. Please observe for these seven signs. If you see only one sign, it is a red flag. It is hard when there is not enough money but falling for a scam like this will make your financial situation worse.
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I am happy to answer any questions you have. If you have an experience you would like to share, please feel free to leave a comment. Your comment will help all of us to avoid these scammers.
I have gotten offers via snail mail that has appeared to be too good to be true, but I always throw them away. I know that my score isn’t great and have been working towards repairing it.
I guess I was unaware that there were so many scammers out there preying on people who are just hard working folks trying to make ends meet. It is very helpful to have sites like this one to help us regular people understand just what is really going on.
Thank you for taking the time and effort to post this, it is very informative.
Hi Frank, In today’s economy it is difficult to have a good credit score and then a scammer comes along and makes it all worse.
I am so happy I can make you more aware of this type of situation. Thank you for your comment and compliment of “very informative.” I appreciate you.
There are a lot of persons out there claiming to give you a loan with no hassle, but you have to be careful as you might end up wasting your time and money. If it seems too good to be true, then it is. It’s easy to get caught in this trap when your back is against the wall.
I have lost money this way already and I have learnt my lesson well. Sometimes we end up paying for trying to seek an easy way out.
This was really helpful.
Brenda, so many people have lost money this way. It is sad. Please do be careful in the future. And feel free to share this with anyone who may need to be informed.
Laura
Hi Laura. Thank you for sharing this awesome information how we can spot a personal loan scam. I have discovered these days that scammers will tend to pressure you as you have said. Not giving you time to do your own research. This article is informative plus I like the way you structure things… 🙂
Thank you very much. Yes pressure is a strong gimmick for a scammer to get what they want.
Laura
Yes a lot of scams online promising loans. There are more of them coming up these days.
I cannot imagine that a company or whatever they may call themselves will request for financial payment upfront before they offer you personal loan, that is the number of sign that you need to run for your life. One needs to follow his or her instinct.
Yes a person does need to follow their instincts. I hope these signs will reach the world so more will have an idea of what the red flags are.
Laura
Hi
Thank you for this article and building awareness around this scam.
This is so sad to read that these things are going on.
The first red flag that should send off many alarm bells is when the so called loan company asks you to send them money.
You have raised very good points to be aware of if someone finds that they need to contact a loan company.
I will be sharing this article to help build the awareness on the good work you have started. This is a need to know.
Jennifer
Jennifer, thank you for sharing this article. I do want more people to be aware of the red flags.
Laura
I must thank you for this article Laura. I had experience with this type of scam in the past and I can say that it is terrible. When people hear what money they can get, they often run to pick that money but don’y know that consequences are very big. I am happy that there are posts like this because people should pay more attention when it comes to this types of loan.
I am so sorry you had to go through this. It can happen to anyone. But now you know what to look for.
Laura