Most people rely on loans when they’re down and out, needing a little extra cash to cover an unexpected expense. But some less-than-savory individuals take out loans to scam lenders out of money for the heck of it. They pull off this nasty trick by impersonating an unsuspecting person and using their good credit score to apply for a cash advance.
How Does the Borrowing Experience Usually Unfold?
Your check engine light brought you to the auto shop earlier than you budgeted for, so you don’t have the cash to pay the mechanic for essential, yet unexpected, repairs. So, you open your laptop to research loans online when you fall short of what you need to repair your car.
In your search online, you might apply over an online platform like MoneyKey and share your personal information. This financial institution offers simple and convenient online applications that let borrowers know if they qualify quickly using basic contact details, bank account and social security numbers, and employment information.
If you get approved, someone from MoneyKey will reach out to confirm your personal information and verify you understand your contract. Eventually, you’ll receive funds that you can use to handle an unexpected repair and pay them back according to a strict schedule.
What Does a Loan Scam Look Like?
A loan scam follows many of the same touchpoints as the typical borrowing experience outlined above. Except in the case of fraud, the person who applies using your personal information is a scam artist.
They may have stolen your personal information through a phishing scam. These cons convince you that you’re dealing with a legitimate financial institution, so you mistakenly share confidential information with fraudsters. You may have entered your information on a fraudulent site, thinking it was a legitimate retailer. Or, with data breaches on the rise, there’s a chance your identity is exposed when a trusted company is hacked.
In any case, a scam artist will pretend to be you when applying for a loan. They usually pick quick cash advances or no credit check payday loans to fly under the radar. Since a fraudster has all the information it takes to be “you,” the typical lender will think you are genuinely applying for these cash advances and extend funds to the scammer.
These scammers disappear as soon as the lender deposits the online loan. Eventually, the lender will call for payment, and because it was your name on the account, they’ll contact you. And in the meantime, all those missed payments have been tacked to your credit report.
Types of Loans One Should Avoid Taking
You may not entirely avoid loan scams. However, you may avoid taking vulnerable loans that are more trapping for the consumers. Some of these commonly available predatory loan frauds are in the given form:
Title Loans
These types of loans are offered in exchange for your home or car for a specific time. If the consumer fails to return his loan within the given time limit, he is likelier to lose his car or property to the lender. Almost 20 to 25% of title loans end up in losing their vehicle or property possession.
Pawn Shop Loans
This is yet another loan scam that traps the majority of the consumers who are in immediate need of money. Pawn shop loans are offered in exchange for the collateral or anything that the consumer may offer to the shop. The time to return the loan is quite limited and do not require any credit check as the loan amount is not too hefty.
Payday Loans
Calling it the favorite type of scam loan of scammers and fraud wouldn’t be wrong as these types of loan trap anyone and is offered at a high-interest rate. Once you have taken the loan, the vicious cycle of paying the previous loans continues, making it difficult for the victim to come out of it.
401(k) Loan
This type of loan is taken from the retirement savings plan per the employer company’s terms and conditions. It makes you withdraw 50% of your account savings in the form of a loan that eventually makes your retirement savings look like debt. Moreover, a 10% tax and even more if you fail to return the total amount makes this type of loan even more cringe-worthy.
Student Loan Scam
Since most students are not financially literate, they easily fall prey to this type of loan scam. In this case, the scammer comes up with lucrative loan cancellation or debt relief offers, forces you to pay an upfront fee, and forces you to unveil your Federal Student Aid ID to access your student loan information that may cause trouble later.
How to Spot Loan Scams?
Loan or financing scams are difficult to avoid as these loan scammers are everywhere and are always in search of targeting people who need money desperately. People who are not educated about finances and are in circumstances when they need money out of nowhere fall victim to these scammers, and without even knowing the consumers, these fraudulent keep trapping them gradually. You feel that you will get rid of the loan amount by paying it completely, and the next moment, you realize that the interest rate is constantly captivating you.
However, if you want to avoid becoming a victim of loan fraud, you should know the red flags to spot in a loan scammer. While signing the application, you should know all the terms and conditions to know everything about the process. These scammers try to charge you with high-interest rates that increase the whole loan recovery process.
As a borrower, it is crucial to know your rights and keep a few things strictly in mind while choosing a lender:
- A trusted lender never asks to pay a fee to access personal loan funds. On the other hand, a scammer keeps asking for an upfront fee and never clears the terms and conditions of the loan amount.
- A loan scammer ensures your loan is approved before even looking for the requisites. Before lending money to the borrower, a certified lender checks his credit history and other eligibilities based on the loan approval. While a scammer promises to approve your loan even before applying and traps you in the process from which it is difficult to come out.
- A loan scammer is not registered with RBI or other regulatory bodies, which is a solid indicator of the lender being a scam. A lender that is not registered in your state or city cannot legally lend you money. While approaching a lender, asking for his license and registration before committing to a loan amount is important.
- A loan scammer keeps cold-calling you with new offers and insists you avail it while you are not even interested. Moreover, scammers also want to access your personal bank information and keep offering your lucrative deals via phone calls, emails, or text messages.
How to Avoid Becoming a Personal Loan Fraud Victim
Being on the hook for a loan you never wanted is frustrating and stressful. While you have some recourse to report and dispute this crime, it’s easiest to avoid being in this situation in the first place.
Here’s what you can do:
- Visit the Federal Trade Commission’s page on how to recognize phishing. Knowing the red flags of a scam can keep your personal information out of fraudsters’ hands.
- Always confirm you are dealing with legitimate retailers, businesses, and financial institutions before entering your personal information online. Cross-reference their information online to ensure it holds up to scrutiny.
- Know the signs of an unsafe website.
- Read reviews on unfamiliar brands or use this search: [brand] + scam.
- Enable biometric authentication on financial accounts to ensure only you can access accounts.
- Put a credit freeze on your file if you suspect you’ve been had.
Stay safe out there! Protect your financial information diligently to avoid becoming a victim.
Conclusion
If you are affected by loan scams at any point in your life, you must be aware of how disturbing and exasperating it can be. However, professional help is always available for those who don’t want to fall prey to loan scams or need help recovering from a previous loan scam. If you want to take a loan but don’t know what type of loan you should take, you may always consult a certified and experienced credit counselor who assists you regarding your financial status and guides you toward different types of loans which are suitable for your needs. Taking and managing debt with a debt relief plan is mandatory for financial stability and to protect you from any loan scam. Moreover, you may keep your loan journey hassle-free and explicit by doing thorough research under market regulations and choosing a trustworthy lender who strictly follows the legal terms and conditions for lending money.
John Davis is a passionate content writer with a knack for crafting engaging narratives across various subjects. With a keen eye for detail and a love for storytelling, John brings ideas to life through the power of words. His dedication to delivering high-quality and informative content has made him a trusted voice in the digital realm. When he’s not at his desk, you’ll find John exploring new hobbies and seeking inspiration in the world around him.
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