Personal Loan Scams: How to Make Sure a Loan Company is Legitimate

When looking for a personal loan, your focus is usually on the details — like fees, interest rates and repayment terms. But while these are important factors, one key issue outweighs the rest — ensuring that the loan company is legitimate.

According to the Federal Trade Commission, about $3.3 billion was lost in loan fraud in 2020. It isn’t always easy to identify a scammer, because many are professional tricksters who’ve devoted a lot of time and resources to their sales pitch in order to make it sound legitimate. However, by knowing the warning signs and steps to take to check if your loan company is legitimate, you can minimize your risk of becoming a victim.

What are personal loan scams and how do they work?

There are countless scams, but the basic idea remains the same. The personal loan lenders will trick you into paying them money, then don’t come through with the funds. Some of the most common tactics include promises to waive the credit check, high-pressure sales tactics or demands for upfront payments through an unconventional payment method. If a lender requests payment through PayPal, Venmo or prepaid gift cards, do not send them money. These are not methods that a trustworthy lender would use, and they’re difficult to trace.

Five ways to ensure a personal loan company is legitimate

When researching your personal loan, there are a few ways to investigate the lender before proceeding with the application. A few minutes of research can potentially save you a lot of aggravation down the road.

1. Make sure the company is registered

It’s important for a lender to be registered to do business in your state. Check with your state regulatory agency to confirm that the lender is licensed.

2. Verify that the company’s website is secure

Look for a padlock symbol in your browser’s URL bar of your browser. Check the URL and make sure it starts with “HTTPS” as opposed to “HTTP.” These indicate that communication between your device and the site is secure.

3. Do some online sleuthing with Google and Yelp

Online reviews are a great way to gauge what other people think of the lender and what their experiences have been like. If you can’t find any reviews or find only a couple of exceptionally glowing reviews that seem like they’re written by the same person, it could be a red flag. 

4. Check out the BBB reviews

When people have an exceptionally bad experience with a company, they tend to turn to the Better Business Bureau to complain. Look at the company’s rating and reviews to see if a company has a history of treating its customers fairly, and if the company is responsive to customer complaints. If you can’t find a listing at all, you might be dealing with a scammer. 

5. Verify the lender’s contact information

Call the company’s phone number and ask verifying questions. If you have the physical address, map it to make sure it’s a real location.

Four common types of loan scams

Common personal loan scams ask for money upfront or have loan terms that subject the borrowers to high late fees and other charges.

Let’s take a look at some common personal loan scams:

1. Loan-fee scam

Many fraudsters will offer a low-cost, low-fixed-rate loan and demand the fees are paid upfront. After they receive the fees, they disappear and you don’t get your loan money. Don’t give anyone any money upfront, and if it sounds too good to be true, it almost certainly is a scam.

2. No credit check scam

Borrowers with poor or no credit history will find loans that promise no credit check appealing. Some borrowers are happy to find a lender who is willing to lend them cash without asking about their past and hand over their personal details and some fees without asking any questions. Often what seems too good to be true usually is. Make sure to do your research before handing over money.

3. Private student loan forgiveness scams

There are several credible ways to have your student loans forgiven, but you need to seek them out if you’re qualified. If a lender approaches you with an unsolicited offer to help without knowing the specifics of your loan situation, it is almost certainly a scam. If they offer to get rid of your student loans for an upfront fee, walk away.

4. Debt consolidation scams

Debt consolidation is when you combine several smaller loans into one bigger one. It can streamline your debt repayment process and can save you money in the long run, but there are plenty of shady companies looking to take advantage of people who are desperate. If a lender seems pushy, demands upfront payment, tells you to stop paying your bills and is reluctant to share company details with you, find a different lender. 

10 signs your personal loan could be a scam

While shopping around for personal loans, keep your eyes open and be on the lookout for the warning signs that will help you spot loan scams. Here are a few signs you should not ignore:

1. Guaranteed approval

A legitimate company will not offer guaranteed approval without reviewing your documents, inquiring about the type of loan you need or verifying your credit score. If a company offers guaranteed approval, it’s a major red flag.

2. Unsolicited offers

Lenders will sometimes send unsolicited offers by mail to those who have previously applied for loans. Some scammers will try to take advantage of this strategy, hoping that you’ll confuse their offer with one for a legitimate lender. Don’t trust any mail, email or phone calls if you haven’t actively expressed interest in a loan.

3. No fees or credit checks

Aside from a few notable exceptions — payday loans and other cash advances, for example — lenders will use a credit check to determine your creditworthiness. Any legitimate personal loan application will not be approved without a credit check. Do your research if a lender promises that your credit doesn’t matter because it could be a scam. Some lenders offer loans for borrowers with poor credit, but they will still run a credit check to determine the interest rate you’ll pay.

4. Lack of transparency on fees

Scammers will not post fees on their websites and only disclose them when asked. Some lenders may issue a loan approval and then demand that you pay a fee upfront. Don’t pay them. Avoid companies that don’t have a straightforward fee structure. If a lender asks for money upfront for paperwork or processing, it could be a scam.

5. You’re being pressured to act immediately

If a lender tries to pressure you by claiming that your loan offer is only available for a limited window, or tries to demand that you act immediately, it should be a major warning sign. A legitimate lender won’t try to pressure you into making a quick, uninformed decision. 

6. A lender is not registered in your state

According to Federal Trade Commission requirements, loan brokers and lenders must register in the states where they operate. If the lender isn’t accredited in your state, it could be a loan scam. This is easy to look up online, or you can contact your state attorney general’s office for assistance.

Read more: Tribal payday loans (What you need to know)

7. A lender has no physical address

A legitimate lender will be able to provide a physical address for you to verify. If they don’t have a physical location or they’re unwilling to disclose this information, find another lender.

8. A lender doesn’t care about repayment history

Before approving a loan application, lenders will focus on your creditworthiness and repayment history. They will check your credit report to ensure that any credit cards you have are being used responsibly. Your loan approval and interest rate will be based on this data. If a lender says the company doesn’t care about your repayment history, it could be a scam. 

9. A lender demands a prepaid debit card, credit card or gift card

If anyone asks you to provide a prepaid debit or credit card or a gift card, telling you it’s necessary to cover loan fees or will be held as collateral or insurance, you’re dealing with a loan scammer. While legitimate lenders might charge an application or origination fee, the amount will be deducted from the loan. Reputable lenders will never ask for a gift card. 

10. A lender calls, writes or shows up at your home with an unsolicited offer

There are some lenders who advertise by mail or call you with preapproved loan offers ― like a live check, for example. When a company approaches you out of nowhere, use caution. If they offer you any kind of check, read the fine print. One common scam is to mail a check for several thousand dollars with instructions to deposit the check, then use the money to buy a gift card to mail them to cover the “loan fees.” Do not do this. The check will bounce a few weeks later, and if you’ve sent them a gift card there will be no way for you to get that money back.

Want to know more about the warning signs of a personal loan scam? Check out this video:

What to do if you think you’ve been scammed

Even after taking all of these precautions, it’s still possible to be scammed. If you feel you’re a scam victim, here are some steps to follow:

Contact law enforcement

File a police report with the local police department and keep records of the documentation. It will help you going forward. It will also help protect others from the group that scammed you.

Contact oversight agencies

After filing a police report, file a complaint with any other relevant authorities. The Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC), your state’s attorney general and the Better Business Bureau are good places to start. The FBI also tracks this information. Any of these might be able to help you get some of your money back, and if they can’t, at least they might be able to prevent someone else from becoming a victim.

Compile and provide documentation

Collect evidence and document all the information you can find on the loan, including emails, phone calls, signed agreements and letters. If applicable, document bank account statements and provide all the documentation to all the agencies as proof. Contact your bank or credit union to ensure that the scammers can’t withdraw money from your accounts.

Place a fraud alert with one of the major credit bureaus

Place a fraud alert with any of the three major credit bureaus ⁠— Experian, TransUnion or Equifax ⁠— and it will be noted on all three of your credit reports. You can also request a credit freeze, which means no new credit will be issued in your name unless you contact the credit bureau to authorize it. A credit freeze is essential if you feel you’re a possible target of identity theft.  Check free copies of your credit reports at to ensure that there aren’t signs of other fraudulent activity.

Talk to family or friends about your concerns

Be honest with your friends and family and tell them you’ve been scammed. Keep them informed. Don’t be ashamed of what happened. Talking about the situation and sharing your story so that others do not fall victim to it may make you feel a bit better. You have the power to prevent others from being scammed.

The bottom line

It isn’t always easy to spot a scammer. But being aware of the warning signs and the steps you can take to ensure your loan company is legitimate, you will minimize your risk of becoming a victim.


Are loan-forgiveness companies real?

Legitimate government programs like Public Service Loan Forgiveness help eliminate federal student loans at the end of a specific period, but only specific borrowers will qualify for these programs. Loan forgiveness companies that promise to forgive your loans are almost certainly not legitimate unless you know for certain you meet a program’s specific requirements.

Is it normal to pay an upfront fee for a loan?

Paying any kind of upfront fee before getting a loan is a major red flag. While a lender may require an application fee or may have other fees for the loan you want, you will not pay any fees upfront. The fees will be deducted from your total loan amount.

Do loan companies check your bank account?

It depends on the type of loan you’re seeking, but most legitimate loan companies will check with your financial institution or credit union, and they will verify bank statements for your savings and checking accounts to confirm your income. Be wary of any lender who promises to give you a loan with no income requirements or verification.

Are bad-credit loans legitimate?

Having a low credit score won’t automatically disqualify you from getting a loan. Some lenders even offer loans to people after they’ve filed for bankruptcy. But it will lower your chance of approval and mean you’ll pay a higher interest rate. Bad-credit loans are targeted at borrowers who have particularly low credit scores. They offer fixed interest rates and are not backed by collateral. Instead, lenders will review your credit score, credit report and your debt-to-income ratio. Bad-credit loans are legitimate and can help people rebuild their credit scores.

What are advance-fee personal loan scams?

Do you need to borrow money fast for car repairs, to consolidate debt or make your mortgage payment? Scammers will promise they can get you a loan, credit card or access to credit ⁠— or offer to put you in touch with a lender who will get you those things, despite poor credit history. But they’ll require payment upfront for “applications” or “processing. It’s a lie. After you pay, the scammer will disappear with your money. Never agree to pay a fee upfront.

Why is it a bad idea to wire money?

Wiring money is like sending cash through the mail — once it’s gone, you’re probably never going to get it back. Don’t wire (or Venmo, or Cash App, etc.) money to a stranger — no matter the reason they give.

What should I do if I’ve already wired money to a scammer?

If you sent funds using a wire transfer company like MoneyGram or Western Union, contact the company immediately. Tell them it was a fraudulent transfer.
Ask them to reverse the wire transfer and return your money.
You can reach MoneyGram at 1-800-MONEYGRAM (1-800-666-3947) and Western Union at 1-800-325-6000.
If you sent the wire transfer through a bank, contact them and report the fraudulent transfer. Ask if they’ll reverse the wire transfer and return your money.

How widespread are personal loans scams?

Personal loan scams in the U.S. are lucrative. In 2020, $3.3 billion was lost to fraud.  
Although scammers may seem convincing, always use caution and do your research. If you can’t find any information at all online, it’s a red flag. Walk away. Don’t share any personal information, especially your social security number or any bank account number, with a lender until you’ve checked out their reputation. And most importantly, if you think you might have fallen victim to a scam, report it immediately.

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