More than a million Americans are trapped by loan scammers every year.
In this blog, we will not only show you the 5 warning signs of a loan scam, but we will also reveal the two most common scams that cost your money.
Let’s talk about online loan scams
We are going to start with a quick explanation of what are personal loans and why you might need one someday.
Then we will reveal those 5 warning signs that you are being scammed online through personal loan frauds–
What is a personal loan?
A personal loan is simply an unsecured loan you get from a traditional bank or online lender. Unsecured means you don’t have to put up your house or car as collateral and you can use that money for whatever you like.
The average rate on personal loans is around 14% so this isn’t something you use for casual spending but that’s still below the 18% average rate on credit cards.
Another upside is that the online lenders usually have lower credit requirements than traditional banks so you can usually get one of these loans even after your FICO falls in the recession. But you can imagine attracting borrowers that have nowhere else to turn; this brings out the scammers, the loan sharks, and the hackers.
A lot of dollars is stolen from people through fake loan scammers. Like a lot of things online, the regulators just don’t have the resources to watch everything that happens so a lot of these scams just won’t die.
But there are warning signs you can watch for, hints that will tip you off to a scam before losing your money.
The first warning sign you should watch for is the promise of no credit loans.
Now we know that sounds great, get a loan even with bad credit because the lender does not even check your FICO score. Understand though that legit lenders are in the4 business of charging a fair interest rate depending on the risk in a loan. The only ways they know the risk is by checking your credit report and score so if they are promising you money without doing this,
Getting a loan at a high-interest rate- You have got one of two things on your hand
You are either going to get a super high-interest rate, we are talking 35% a year or higher. At this rate, the lender is going to make money anyway. But a lot of these no credit loans are just outright scams. They are going to rope you in with that promise then drain your bank account before you know what’s happening.
Upfront fee – The next warning sign, and this is where most of the scams make their money, is with upfront fees or collateral. No one will ever ask you to pay an upfront fee before you get your loan.
Most charge an origination fee which is taken out of the loan before it hits your bank account, but that’s only once you have gotten the loan. Now they might call it an application fee or a processing fee. Think about it though, lenders are in the business of processing loan applications and making loans, why would a legit lender charge you a fee for the possibility of making money off your loan? Please do not pay a fee to an online lender.
Unregister lender –The third warning sign, and this one is probably the best for spotting scammers,
Is an unregistered lender, all lenders no matter they are online lenders or not must be registered in their respective state where they want to do business.
The state regulators examine applications for fraud companies and also take complaints so this is a great resource to check anytime a lender comes to you to offer a loan.
NO physical address – Another big warning sign is when the lender shows no physical address on the website or in emails. The FTC spam act requires that all emails from a business must include a physical address somewhere on the page.
Click the link given below – Number five and probably the most common warning sign to a loan scam is emails out of nowhere. It is always a matter of amazement how spam email catches so many people every year. If you are offered money by any lender through email is 99% of the time a scam.
The way most of these work is the link in that email gives the scammers access to your computer through some kind of virus or malware. As soon as you click on the link the virus will enter your computer and your identity will be stolen as well.
Now one of the most common loan scams is called a Phishing Campaign.
This is where the scammer will send out thousands of emails with a link in it to confirm your bank account login or supposedly to verify something
A lot of times, they will even disguise this as helping you avoid a problem. So the email will supposedly be from your bank and will say it found a suspicious login to your account. It will then say to click the link to confirm that it wasn’t you. Again, when you click on that link or open an attachment, it downloads a secret virus or code on your computer that gives the hackers access.
Wire Scam –The next type of scam, and this one is probably the one we see people get caught up in most often, is a bank wire scam. Now the scammer here tells you it will verify your bank account with a wire transfer before they give you a loan. Once the wire sent, you are supposed to send the money back through an ACH payment or something. What happens here is your account is never credited with the wired money but you don’t know that until it’s too late. You withdraw and send that verification money back before the wire is canceled and you are out a few hundred bucks.
After all these warning signs and examples, you probably are ready to swear off personal loans completely, but they can be a good resource when you need the money.
