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Personal Loan Scams and Frauds: What to Keep an Eye On

When you request to get a personal loan, a loan scam is a serious aspect of the procedure. The information you disclose during the application process will not just be attractive to lending institutions. Criminals can also use the details to take cash from you. Learn more about the loan scams that personal loans are subjected to.

The personal loan fraud category is the second most expensive white-collar crime in the United States. According to the Federal Trade Commission, there are millions of victims of loan scams. In the case of frequent victims of fraud, it’s money they cannot afford to lose.

This blog will list the kinds of personal loan scams and frauds that every person should be looking for. You can recognize the indicators of fraud on your way toward financial security.

What are Personal Loan Frauds and Scams?

Before we discuss the loan scam types to be aware of when you request for personal loans, what exactly is fraud?

Fraud is the act of deliberately misleading a person to take money from them. Fraud involves making false claims that result in a person giving an item they wouldn’t have if they had known the truth. Most often, the loan company or person responsible for the fraud is aware of something the victim does not know.

Common Personal Scams and Frauds in Loans

In the realm of personal loans, fraud occurs frequently.

The Signs of a Personal Loan Scam

With a myriad of personal loans, like student loans, it’s difficult to stay on top of the rapid growth of fraudulent personal loan scams. However, there are apparent signs of typical loan scams that you can easily recognize.

Guaranteed Approval

Personal loan applications ( with no credit check) are not guarantee-free. Therefore, any business which claims you’ll be accepted “regardless of” the circumstances can be a loan scam.

The good news is that there are personal loans with bad credit scores (e.g., student loans) available for those with poor credit scores. However, the denial and approval for a bad credit personal loan are still dependent on the same criteria as any other personal loan.

Credit History Hasn’t Been Reviewed

Your client’s credit history is the most crucial aspect of any reputable lender in determining whether you are approved or denied. Good credit history can outweigh a negative credit score. A lender would like to know that they’ll receive their cash return from you.

In the end, the interest rates they charge on the personal loan with no credit check they made to you is a profit for them.

So why would a bank prefer a borrower with a poor credit score? To accumulate penalties and fees that can keep the borrower in debt for months or even years. The debtor will have to pay back more than the principal and the interest rates.

A prepaid credit card is required.

Some scams involving personal loans, like student loans, demand borrowers use prepaid debit cards to secure loans. They claim the credit card is for security, collateral, or fees. Some legitimate banks charge fees to cover the costs of the personal loan application.

However, these fees, which are typically referred to as origination fees, are paid out of your loan amount. This means you only have to pay them when your personal loan application is approved. Good leaders won’t demand money in advance. Beware of lenders that require your credit card details.

The Hidden or Surprise Advance Fee Affects the loan’s Red Flag.

Because of The Truth in Lending Act, consumers are entitled to be informed about interest rates and finance charges on loans. If a lender does not include an advance fee, it is an indicator that could indicate fraud in the loan.

The bad no-credit-check loan companies may also attempt to alter the fee structure to make it easier to complete requesting for loans.

By the Federal Trade Commission (FTC), the borrower must beware of any loan company with no credit check that demands upfront payment. In particular, they should avoid using words like “processing,” “insurance,” or “paperwork.”

The lender Doesn’t Have a License in Your State.

The Better Business Bureau has required a loan company to register in the states where they deal with their customers.

If you’re planning to request for a personal loan, visit the lender’s website to confirm that they’re authorized to provide loans with no credit checks to people in the state you reside in.

If the lender’s website does not include an address in the physical world, this is a clear indication that you need to stay clear of it. Many fraudsters will use this to avoid legal penalties.

The loan company Needs to Take Action Now.

The borrower is often confronted with aggressive tactics. These tactics are intended to convince the borrower to take action quickly without understanding or analyzing a lender’s loan offer.

If you’re being pressured to make a fast decision about a loan, you’re probably close to falling victim to fraudsters who offer personal loans.

A suitable lender will give you a few days to decide whether to accept a loan. Whatever your financial needs are, do not feel you are pressured to make a fast decision. There is a chance to think about the best choice for yourself always.

Mortgage Loans/Frauds

The term “mortgage fraud” refers to a false representation made by the borrower, seller, lender, or both that results in the approval of the mortgage loan that they would typically not be eligible for.

Identification Theft: What to be Watching For

The term “identity theft” (or Identity fraud) is when a person’s private information is accessible by a third party to commit fraud. The scam often involves the victim’s information utilized for profit or intentionally damaging their financial standing.

Identity thieves gain access to anything related to social security numbers to medical insurance. Financial identity theft is the most frequent type, where a person’s information can acquire credit cards, benefits, or other goods.

What is the process behind this personal loan scam?

Identity thieves scan all areas of our daily lives for helpful information. They can use methods ranging from listening to your telephone calls to finding the bank account numbers inside garbage cans.

The best chances for identity thieves lie in the utilization of technology. They can use methods such as searching abandoned hard drives, infiltrating computer networks, and installing malware on victims’ PCs. Identity criminals also use social media websites to copy the accounts of their victims’ acquaintances.

As per the Federal Trade Commission, the number of reported personal loan scams increased twofold between 2019 and 2020. Furthermore, the Better Business Bureau said that there was a 2,920% rise in fraud cases. The increase is primarily due to the increasing federal funds for COVID-19 economic relief.

Synthetic Identity Theft

Over the past several years, a different type of identity personal loan scam has increased in frequency: synthetic identity thieves.

How to Guard Against theft of identity

Identity thieves improve at their job every day, making the task of removing theft of identity difficult. But, you can take a few ways to make it harder to gain access to your data.

Freeze Your Credit

You can limit credit reports with the three credit bureaus (Experian, Equifax, and TransUnion). When you block your credit report, neither the creditor nor the loan lenders will be able to access your information. All major credit bureaus will allow the ability to freeze and defrost your credit for free.

Monitor Your Credit Report

Your credit report is an excellent opportunity to detect the signs of fraud. Each credit bureau provides free access to your report.

Check your credit report to verify the details of all bank accounts you have listed. It also determines your credit score.

Secure the security of your Social Security number

The Social Security number is possibly the most significant identification number you’ve got. Consider it to be the password master to every vital information.

It is unnecessary to take your social security number in your pocket, so store it safely in a secure place. Also, make sure you ensure that you secure all documents that have the social security numbers.

Make Your Password Stronger and Play the Play the Authentication Game

Although it’s nice to use the same password across multiple accounts can make the task of cybercriminals extremely simple. Instead, you should use a password manager to make complicated security passwords suitable for an online account.

Find a Shredder

Documents containing bank account numbers, social security numbers, or other personal information precisely describe what identity thieves are searching for. In many cases, individuals make it easier for them by throwing them away.

What is the process for prosecuting personal loan scams?

There are anti-fraud laws in place that govern businesses at the federal and state levels. The prosecutor in these cases decides whether the person who committed the personal loan scams can go to trial.

To establish a strong argument for fraudulent activity, the prosecutor has to demonstrate the following:

  • The perpetrator made an untrue statement as factual.
  • The perpetrator was aware that the information wasn’t a fact.
  • There was incorrect information to deceive the victim
  • The victim’s faith in the false claim
  • The victim may get a lower credit score

In conclusion

The threat of personal loan fraud, regardless of effort, will not disappear any time shortly. The key to staying away from scams and fraud is to be on guard.

Knowing where your personal information is throughout the day is among the most vital safeguards against fraud. When filling out the new loan options, make sure that you know where your personal information is going.

Be sure to think about the absolute necessity of giving out your details. Does the personal loan or offer you’re looking to request for an actual requirement?

As we’ve said before, no matter how hard we try to combat personal loan scams does not always work. With every defense you present, criminals are working to come up with new crimes. If you are the victim of fraud, act immediately.

Stop access to the public area of your account as soon as possible and then freeze your credit. Contact the local law enforcement agency to determine what actions you can take to investigate the incident. If law enforcement isn’t able to assist, you should contact an attorney to assess the possibility of civil actions.

Therefore, it is important to research all the ways you can protect yourself from personal loan scams. This will allow you to stay clear of the risk.


  • table of contents
  • advertiser disclosure
  • interest rates
  • prepaid card
  • warning signs
  • interest rate
  • credit score
  •  credit check
  • interest rate
  • red flag
  • credit cards
  • a credit check and credit score