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How To Detect & Avoid Personal Loan Scams


If you’re strapped for cash, the offer of a personal loan may seem like just the break you need to hold you over, particularly if your credit is not so great. But be careful. Fraudsters use the frustration and desperation of those with cash and credit problems to trick them into sophisticated personal loan scams.

There are a handful of common personal loan scams to be aware of. Of course, there are some tell-tale signs that separate the scams from the real deal. Below is an overview of some common scams and some red flags that are a dead giveaway.

Scam #1 – Advance Fee Loans

This scam is all about trying to get people to pay an advance fee at the time of loan approval. The scenario goes something like this: You see a compelling advertisement that guarantees loan approvals for good or bad credit.

Motivated by the ad, you submit the requested loan information and supporting documents as part of your loan application. A few hours or days later, a friendly and polite telephone caller responds with the good news. The loan has been approved, but an insurance fee, processing fee or three months advance payment is needed before the loan is released and the check delivered. You’re asked to pay the fee immediately through electronic transfer of the money.

Elated by the news of your loan approval, you wire the money. The money you wired is picked-up by the “loan” broker, but the promised loan never arrives and the up front fee paid by the consumer (which can total several thousand dollars) is lost.

In the best case scenario, this is a legitimate broker who tried to get you approved for a loan but failed. They may have some small fee as part of their loan brokerage process to offset their marketing costs. However, if it was a legitimate broker, they would disclose their fees clearly and early in the process and they would never communicate that your loan was approved. Over the past few years, many states have enacted legislation prohibiting loan brokers from charging an advance fee. So this should be an uncommon scenario.

In the worst case scenario, it’s a scam artist who never had any intention of getting you a loan in the first place. They simply orchestrated the story to get you to hand over your cash. The worst part is that they now have all your personal information from the loan application, such as your social security number and bank account information. They could use this information to rob your account or commit identity theft.

We are aware of a current scam being operated by a company claiming to be “LoansNow Financial Services” or “LoansNow Credit Services”. They are reaching out to consumers by calling from an unlisted number and informing them they have been approved for a loan ranging from $2500-4000. They are providing our LoanNow website and address in attempt to appear legitimate. The fraudsters request a bank account and routing number, claiming they will need it to deposit loan funds. They then state the consumer needs to send $250 via MoneyGram in order to either “buy insurance” on the loan” or “to verify you are a responsible and real person”. They are operating under false names such as Roger Smith, Robert Johnson, Chip Walters with cell phone numbers from the New York area, even though they are an overseas operation. We are not associated with this company in any way and if you are contacted by them, we encourage you to contact your local authorities. 

Scam #2 – Loan Phishing Scams

When fraudsters impersonate a business to trick you into giving out your personal information, it’s called phishing. Sometimes these scams are done by impersonating the websites of well known financial institutions. Other times they spend a bit of time building a legitimate looking website offering you a loan. In either case the goal is the same: to get your personal information.

Why would somebody do this? Well, you can gather a lot of juicy information with a phishing scam. First, you can get somebody’s bank account number and password. Then you can try to hijack their assets. Some phishing scams ask for all of your personal information (SSN, mother’s maiden name, date of birth, etc) so that they can steal your identity and open credit accounts in your name. Some victims of phishing scams have given up their credit card numbers only to find that the card was used fraudulently. Or they provide their banking information to find their funds have been wired away.

Warning Signs

Let’s take a look at some warning signs.

A Lender Who Isn’t Interested in Your Credit History

A lender may offer loans or credit cards for many purposes — for example, so you can start a business or consolidate your bills. But one who doesn’t care about your credit record should worry you. Ads that say “Bad credit? No problem” or “We don’t care about your past. You deserve a loan” or “Get

money fast” or even “No hassle — guaranteed” often indicate a scam.

Upfront Application Fees

Be very weary of a lender requiring you to pay an upfront application fee just to apply for a loan. Legitimate lenders will not ask you to pay anything before you receive your loan. Doing this is against federal law and lenders know they can lose their registration or license if they request pre-payment.

Scammers will justify the fee by calling it a processing fee or even try to classify it as collateral required because of your bad credit. Of course, once you pay this bogus advance fee, the scammer will take off with your cash, leaving you in an even worse position than where you started.

Pressure to Act Immediately

Advance fee loan schemers will try to get you to send money or give out personal information (credit card number, bank account information and social security number) before you even get any paperwork. Insist on receiving the necessary paperwork before deciding whether to apply for the loan or line of credit.

Bad Credit, No Credit, No Problem

When a lender claims not to care about your credit history, or has ads that guarantee you will be approved, be skeptical. Legitimate lenders don’t guarantee they can approve a loan until they have assessed your credit history or at least confirmed whether the information on your application form is correct. Even payday loans require you to have a job and a bank account.

Personal Information

Never give your credit card account number, bank account information or social security number over the telephone or Internet unless you are familiar with the company and know why the information is being requested.

Wiring Money

If a lender asks you to make a payment on your loan by wiring money or by paying directly to an individual – run! You are most likely dealing with a con artist. The United States Government has strict mail fraud laws that can put scammers away for up to 20 years if they communicate via telephone or U.S. mail to commit their crime. So naturally, they prefer to use other methods to steal your cash, such as wiring it through Western Union or MoneyPak. Scammers also like using these companies because once you wire the money, it is extremely difficult to trace, particularly when it is wired to individuals or companies in other countries.

Questionable Connections to Established Financial Institutions

Many of these schemers are merely telephone sales operations, so no connection will exist to an established financial institution. Ask which lenders the “loan broker” deals with, and ask for the physical address of the lender. Additionally, crooks give their companies names that sound like well-known or respected organizations and create websites that look professional. Some scam artists have pretended to be the Better Business Bureau, a major bank, or another reputable organization; some even produce forged paperwork or pay people to pretend to be legitimate references. Always get a company’s phone number from the phone book or directory assistance, and call to check that they are who they say they are.

Will Not Provide Location Information

If the loan broker hesitates to tell you their physical location, beware that this is a common ploy to avoid law enforcement detection. Refuse to do business with the broker until you have their physical address or location so that you can do more research. Be wary of PO Boxes. A company that advertises a PO Box as its address is one to check out with the appropriate authorities.

Not Registered in Your State

In the United States, lenders are required to register in every state they do business in. Before you do business with any lender, call your state Attorney General’s Office or your Department of Banking or Financial Regulation and check whether the business is registered. Although having a registration does not guarantee you will like the service the company offers, it will help filter out the scammers.

It’s also a good idea to check with the Better Business Bureau to see whether the lender is registered and what the lender’s BBB rating is.

The Bottom Line

When you have bad credit and you need cash fast, it’s easy to get desperate and let your guard down. Be skeptical about any personal loan offer you receive, regardless of where you hear about it or how convincing and slick the promotion looks. Scammers work hard to make their scams look professional and legitimate.

However, this doesn’t mean that there aren’t legitimate and reputable lenders around who are willing to do business with those who have less than great credit. At LoanNow, we make it our business to help people with poor credit get back on track. We are registered in all the states we do business in, have an A+ rating with the Better Business Bureau, and although we can’t guarantee we will approve your application, we can promise we will do everything we can to help you qualify for your loan and improve your overall financial situation.

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Category: Bank loan

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