We all know of at least one person who has been a victim of some sort of financial scam. Unfortunately, these numbers are on a steady rise, especially during times of economic distress. Whether it’s during a public health crisis like the COVID-19 epidemic or in the middle of a biting recession, fraudsters see vulnerable situations like these to prey on unsuspecting people.
Loan scams are nothing new, with millions falling trap to frauds and scams, losing their hard-earned money. These loans are far different from ethical loans by Salad, for example, which offer a convenient alternative to high-cost lending.
Even though new and improved loan scams and frauds are sprouting up almost every day, scammers often use the same bag of tricks. This makes it important to pick up cues and identify a scam, as well as always stay on your guard.
Discover how to avoid loan scams and five quick ways to identify them.
What Is a Loan Scam?
Let’s first understand what a loan scam is. Simply put, it’s a loan offered under false pretences. Fraudsters come up with creative ways to prey on those looking for personal loans or those struggling with debt issues.
You might be pressured to pay a fee up front for a loan that you will never get, or you might receive an offer of credit that looks too good to be true. To win people over, they can also pose as an official from a respectable lending company. Alternatively, they might steal your personal data and make large loans in your name, leaving you in debt.
Loan frauds can take many different forms, but they always end up being greatly damaging to the victim. Not only do you lose money and possibly go into debt, but you also have to deal with the emotional and mental stress that comes with it.
It’s better to be safe than sorry. And this is why you must understand the common signs of a loan scam so that you can avoid them.
5 Telltale Signs of Loan Scams
1. Lenders Contact You Directly
If someone calls you out of the blue and offers you money, you must have your guard up. In reality, you won’t receive calls from lenders unless you’ve applied for a loan on their website. These scammers may also contact you via email, text or in person to gain your personal information and get a way to access your bank accounts.
2. You Feel Pressured into Lending
When applying for a loan, be wary of offers that are only good for a limited time or “lenders” who insist on urgency. Real lenders consistently offer loans based on variables like creditworthiness and interest rates. While some lenders may offer a waiver of processing fees or something similar, these limited-time deals are limited to fees and are independent of core loan terms and interest rates.
You may want to reconsider if someone approaches you with a “special offer” of a ridiculously low interest rate for a short time. It’s likely a loan trap.
3. You Need to Pay Fees Upfront
You should wait if a lender requests fees either before you apply for a loan or right after it is approved. This is a clear warning sign. For example, you may be asked to pay between £25 and £450 to cover loan insurance or other costs.
Steer clear of such requests as genuine loan companies usually ask for your bank details to deposit the loan amount and to set up a direct debit.
4. You Receive a “Missed Repayment” Communication Even After Paying on Time
Scammers are also trying to defraud people who have already taken out loans through loan repayment fraud. These fraudsters send out letters or emails impersonating your loan company, claiming you’ve missed a repayment deadline and owe the principal amount and a penalty fee. You realise you’re scammed when you still owe your real lender money after paying the impersonators.
5. You’re Promised Debt Cancellation
If you’ve been assured that all your debt will be pardoned, you might want to think twice before accepting the deal. It could be a debt consolidation trap, and you might just fall into it.
How to Avoid Loan Scams
Here are some tips that will help you to steer clear of loan scams and keep your money safe:
1. Clear Loan Terms
Genuine lenders often lay out their terms and conditions in the open, without any secrets. You can check the borrowing amount, any fees including any potential penalty fees, rate of interest, payment methods, and total cost of the loan.
2. Choose Registered Lenders
All lending companies need to be authorised by the FCA and listed on the Financial Services Register. You can cross-verify a firm’s claims on the FCA website.
3. Website Security
Honest lending companies usually have a secure website with an SSL certificate, indicated with a padlock sign in the address bar. Contacting them is pretty simple, and you can easily get in touch with them.
4. Pre-Loan Creditworthiness
If your loan is approved without any prior credit check, you might be a scam. Genuine lenders don’t immediately accept your loan; they almost always check whether you’re capable of paying the loan back in full and on time.
5. Customer Reviews and Testimonials
A company is probably legitimate if it is simple to look for reviews and testimonials from prior clients, especially from unaffiliated websites like Trustpilot.
One way to ensure you’re signing up with a legitimate loan lender is by mistrusting the loan offer and then ticking all these points off to verify the genuineness of the offer.
To Sum Up
When it comes to borrowing money, remember that if it’s too good to be true, it probably is.
Even the most financially savvy people believe they will never fall victim to a scammer’s well-planned trap, but it is always better to be safe than sorry.
Paying close attention to all the warning signs and double-checking various credentials, from clear loan terms to website credentials will help you avoid any slip of judgment and become a victim of loan fraud.