If you need some extra cash or want to pay off debt, taking out a personal loan can be a smart way to get the money you need. Personal loan interest rates can be lower than credit cards if you have decent credit and a personal loan can help you raise your credit score. In addition, there are dozens of online lenders to choose from, some of which offer an easy application process and funding in just one business day.
Along with the pros, of course, come cons. Personal loan scams are not uncommon, so itâs important to proceed with caution when vetting personal loan companies. Find out how to protect yourself from falling victim to fraud.
Personal loan scams typically come with at least one red flag that should signal something isnât right. Jeramy E. Genaway, a financial advisor from Pittsburgh, Penn., shared these six warning signs of a personal loan scam:
Traditionally, when you want a personal loan, you seek out a lender. Scammers, however, often turn the tables by approaching consumers with bogus offers.
âOftentimes, personal loan scams start in a very similar manner as phishing â email â or phone scams,â Genaway said. âIf you receive an email with an offer for a personal loan and the message contains spelling, punctuation or grammar errors, it can be an immediate red flag.â
âIf you receive a phone call with an offer for a personal loan and the caller is rushing you to make a quick decision or you ârisk the offer being rescinded,â itâs often a red flag as well,â Genaway said.
Taking out a personal loan is a big decision that you shouldnât make quickly. Legitimate financial institutions want you to feel comfortable with your choice, so youâll never be pressured to make a move before youâre ready.
If you have no credit or a less-than-stellar credit score, a personal loan with a guaranteed approval is bound to catch your eye. Donât get too excited though, because itâs likely too good to be true. Legitimate lenders never promise your application will be approved. Extending a personal loan is a risk, so trustworthy lenders always review background information on consumers before offering money. If you have poor credit, check out list of the best personal loans for bad credit here.
When you take out a personal loan, you should be the one receiving the funds. If youâre asked to pay money out of your pocket for your loan, thatâs a problem.
You should never make payments for a loan directly to an individual, according to the FTC. The agency also advises against using a wire transfer service or sending money orders to pay for a loan, because a legitimate lender wouldnât make a request like that.
Beware if the lender loans money to those with a poor credit histories, Genaway said. If your credit is poor, a lender not interested in your creditworthiness might seem like a dream come true, but itâs likely a scam.
The FTC notes that advertisements containing wording such as âBad credit? No problemâ or âGet money fast,â are often telltale signs the lender is trying to swindle you. It might not be what you want to hear, but legitimate lenders typically verify credit information prior to approving a loan.
Legitimate lenders are open and honest about any fees associated with your loan. If youâre immediately hit with charges before getting your funds, something isnât right.
Application, appraisal and credit report fees are standard, but the lender usually deducts the fees from the amount you borrow. If a lender asks you to pay upfront fees for services like insurance, processing or paperwork, donât move forward with it.
âItâs important to remain diligent in an uncertain situation where these red flags may be present,â Genaway said. âMost importantly, keep in mind, the scammer is not only trying to potentially obtain money from you, they could also be attempting to obtain personal information such as social security numbers, bank account numbers, address or any other confidential personal information, which could be used for fraudulent purposes.â
The possibility of falling victim to a scam might make you hesitant to apply for a personal loan online, but itâs actually very safe if you exercise proper due diligence. Jeffrey Brown, a financial advisor in the St. Louis area, said applying for a personal loan online is common practice these days, but he advises consumers to do it the right way.
âPeople get panicked and they make poor decisions because theyâre trying to deal with the short term, but they get themselves in trouble in the long term because they havenât made a wise decision with their loan,â Brown said.
Genaway agreed that applying for a personal loan online is generally safe, thanks to technology advances.
âIt has become almost commonplace to skip working directly with a banker or visiting a local branch in lieu of obtaining financing online,â Genaway said.
Consumers can identify potentially fraudulent websites a couple different ways, according to Genaway. First, make sure a lenderâs site is secure â the URL on secure sites start with âhttpsâ â and look for a padlock symbol in the address bar on any page youâre asked to provide personal information.
âIf the perceived lenderâs website is not secure or does not have a padlock symbol, do not enter any additional informationâ said Genaway. âThere is no reason a legitimate lender would not have a secure website, meaning the site you are on is unsecured and could potentially be a fraudulent website.â
Brown reiterated the importance of entering personal information only on a secured website, and also suggested checking with the Better Business Bureau to review the lenderâs ratings.
Beyond looking for a secure website, make sure the lender has a physical address.
âIf thereâs an address listed on the website, double check the address via your favorite online map service to see if there is a building there, and preferably, with their name on or around the building,â Genaway said. âOften times, fraudulent lenders will have addresses that are actually vacant lots or buildings that would not normally contain operating businesses.â
He also said online lenders are required to register in the states where they do business, so see if you can verify that the proper licenses are in place.
âThe lenderâs website should list any states in which it is allowed to conduct business, and if it doesnât, the lender might be fraudulent,â Genaway said.
He also advises researching a lenderâs online reviews and ratings to learn more about other customersâ experiences.
Brown emphasized the importance of researching the lender youâre dealing with, and recommended covering all the bases by specifically searching for unfavorable information on the lender. Do a Google search and include the lenderâs name and key terms associated with a negative personal loan experience.
If youâre conned into a personal loan scam, Genaway said to contact your local police department. He also advised reporting it to your State Consumer Protection Office and the Federal Bureau of Investigation Internet Crime Complaint Center.
Speaking up promptly can help authorities catch the scammer quickly. The faster theyâre shut down, the less time theyâll have to target innocent consumers.
Shopping around is the key to locating the best personal loans online. LendingTree, which owns MagnifyMoney, has a personal loan comparison tool that connects dozens of reputable lenders with consumers in need of financing. By completing one online form, you could receive multiple personal loan offers in a matter of minutes. This is an easy way to find lenders you can trust, without your credit taking a hit â LendingTree performs a soft credit pull that wonât impact your score. Find your loan today with our table below.
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When you do it correctly, finding a personal loan online is a safe way to get a competitive rate. Now that youâve learned about personal loan scams, be on the lookout for red flags. In some cases, theyâll be obvious, but sometimes the signals are harder to spot. Always trust your instincts and never proceed with a lender that doesnât feel quite right.
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