Wednesday, 8 February 2023

Eight Common Loan Scams – Don’t Fall for Them

Every day, savvy people fall for loan scams. In fact, according to the Federal Trade Commission FTC, people lose more than $2 billion annually when they fall for loan brokers with deals that are too good to be true.

Why does this happen to smart people? That’s because the scammers are so very crafty. They masquerade as legitimate personal loan lenders, but they are not. Loan scammers “hide in plain sight” and often use the same contact method that may be used by a legitimate lender.

How can you tell legitimate lenders from criminals? Read on.

What Is a Loan Scam?

By definition, a loan scam as defined by the Federal Trade Commission is a fraudulent financial transaction for a loan or product.

How to Identify a Loan Scam

Here’s a quick checklist you can use to ID personal loan scams:

  • The lender or business has no physical address.
  • The lender or business contacts you via social media messages or email. Often the contact is unsolicited.
  • You’re asked to pay a fee upfront, before receiving funds
  • The website for the “loan company” shows as “unsecured.”
  • You haven’t asked for loan approval anywhere – the loan offer is a surprise.
  • The lender doesn’t care about your credit history

loan scams

Be Aware of These Common Loan Scams

Now we’ll get more specific about the eight most common loan scams. Remember that these techniques would not be used by any legitimate financial institutions.

Advance Fee Loan Scam

Advance fee loan scams are easy to spot. They all require an upfront fee or upfront payment for you to borrow money, sometimes called a processing fee or application fee. Don’t confuse that with a loan origination fee, which is a requirement for a mortgage loan from legitimate institutions. That loan origination fee becomes part of the loan. With advance fee scams, the upfront fees come out of your pocket before the loan money is on the way. The loan proceeds will never be on the way.

Payday Loans

Payday loans are often advertised. For example, the loan scammer advertisements show a common challenge – a person’s pay doesn’t stretch until the next payday. Poor credit? No problem! The scammer company offers to “lend” you an advance against your future paycheck. You go through an approval process – entering all your pertinent information. In other words, the scammer may have information about your checking account. This is a common personal loan scam.

Government Grant and Loan Scam

These scams are commonly aimed at home improvement needs, such as new roofs or windows. The advertisement or scammer says that via a “government program” certain homeowners are eligible for a special loan amount. The ad may say “state approved” or something similar. They’ll promise to deposit the money in your account – all they need is your bank account number.

Phishing Scams

The phishing scam includes a website that looks legitimate, but often shows as “unsecured.” Someone may even call you to “confirm the details” of your loan. What the scammer wants is information, such as your social security number and bank account information. A phisher who contacts you this way is called a predatory lender.

Fake Check Scams

The fake check scam is most often associated with either “work from home” jobs or “surprise” contest wins. In a common “work from home” scam, the fake check is to be cashed by you and used for office equipment or business supplies. You may get those items – but you’ll owe all the money for them. The “surprise” contest win is often a relatively small amount, such as a check for $5,000 for a “lottery” or other contest consolation prize.

You’ll have to give your bank account information so the scammer can do a wire transfer. Or in lieu of a check or wire transfer, the scammer may use a prepaid debit card or another prepaid card. Yes, there’s money on the card – that’s because they don’t care about that money, they want the money in your account.

Government Imposter Scams

The FTC lists the government imposter as the most often used scam. And most often, the scam appears to come from the IRS. You’ll be pushed to make payments immediately or risk jail time.

Debt Settlement Scams

This is a cruel scam that preys on people who already have bad credit or who are struggling financially. The scammer offer is that you’ll get debt relief by consolidating all your loans into one lump sum loan. They’ll provide you with information showing you that your monthly payments will be reduced, for example, from $400 a month to $200 a month. Unfortunately, the terms of the loan will be many, many years. Overall, with the high-interest rates which are common with these scams, you’ll wind up paying back much more money.

No Credit Check Personal Loans

No legitimate lending institution will give you a loan without learning your personal finance history and getting your credit report. This scam loan is a personal loan scam similar to debt settlement, in that the terms are longer and the interest rates higher. Often, there is no loan at all – it’s just a way to get your info.

How to Avoid a Scam Loan or Credit Card

Here’s how to determine whether or not entities are legitimate lenders:

1. Check to see if the lender has a listing with the Better Business Bureau and/or the Consumer Financial Protection Bureau or major credit bureaus.

2. Don’t do business with any lender that doesn’t have a secure website. Those are fraudulent businesses. Stay away from those sites as a rule for online security.

3. Don’t click on links from popups or emails.

4. Make sure lenders are registered in your state, as they are required to do.

5. Only deal with a reputable lender who insists on doing credit reports. Credit checks and what reputable lenders do before making financial decisions.

6. If contact comes out of the left field, via email or social media, that’s a potential loan scam. Hit your delete button.

7. Don’t sign up for a loan unless you’ve received a clear calculation in writing of fees, costs, and interest. There should be no hidden fees.

Do Loan Companies Ask for Money Upfront?

No. When you deal with reputable lenders, they will not ask you to pay upfront money that comes out of your pocket. Any request for upfront money should serve as a fraud alert.

Will a Loan Company Ask for Online Banking Details?

No. Legitimate loan companies will not ask for online banking details.

Can You Get Out of a Loan Scam?

You’d wish they’d have to face legal consequences but it can be difficult to track down the scammer. Act immediately. Of course, make a police report. Also, contact the Federal Trade Commission and your state Attorney General’s office.

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This article, "Eight Common Loan Scams – Don’t Fall for Them" was first published on Small Business Trends



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