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Personal loan scams are pervasive, often targeting borrowers with bad credit who are in desperate need of cash.

Taking out a personal loan can be helpful in addressing immediate money needs, whether it’s covering emergency expenses, funding a home renovation project, or paying for a large but necessary purchase. But it’s important that you learn how to spot a personal loan scam in the wild.

Let’s take a look at common signs and types of personal loan scams and tips for what to do if a scammer has taken advantage of you.

Signs of a Personal Loan Scam

Wondering how to spot personal loan scams? Check out these common signs of in-person, over-the-phone, and online personal loan scams:

No Credit History Is Required

Bad credit personal loans scams are among the most common. Borrowers who have poor credit scores but need cash to cover an emergency or pay their bills are easy targets for scammers (as well as predatory loans and loan sharks, the latter of which operate illegally).

When a lender advertises that they won’t run a credit check, it’s a likely sign of a scam — or, at least, very predatory loan tactics. Scammers may offer approval to get you to pay upfront fees or share personal information, like your bank account or Social Security number.

Typical personal loan requirements needed for approval include a thorough credit check and several other components.

Even if you have bad credit or no credit history, look for lenders that will:

•   Review your credit score

•   Analyze your debt-to-income ratio

•   Ask for collateral (in the case of secured loans)

•   Ask for proof of address and/or income

Don’t be frightened by the credit check. Some lenders offer personal loans to borrowers with bad credit. Just be prepared for high fees and APRs.

Recommended: Compare Personal Loan Interest Rates

The Lender Isn’t Registered in Your State

The Federal Trade Commission (FTC) requires lenders to register with each state in which they do business. You can check a lender’s registration with your state attorney general’s office.

If the lender isn’t registered, you’ve likely stumbled upon a scam. Steer clear.

A Prepaid Debit Card Is Required

Upfront fees are often a sign of a personal loan scam (more on that below), but that’s especially true if the lender asks you to purchase and send a prepaid debit card or gift card to cover administrative fees before they can fund the loan.

Requesting other untraceable payment methods, like cryptocurrency, is also suspect.

The Lender Requires Immediate Action

Lenders that create a sense of urgency or use language that implies you must act now are potentially scamming you. A legitimate lender understands that you may need time to consider an important financial decision, such as taking on debt.

If a lender is requiring immediate action, it’s wise to walk away from the offer. Better safe than sorry.

The Lender Has No Physical Address

A legitimate lender should always have a physical address, even if it’s an online-only lending institution. Even if the lender does advertise an address but you’re feeling uneasy, verify the address online or on your phone with a maps app.

Not Transparent About Fees

Licensed lenders should disclose all fees upfront. If a lender is shady about their fees, it’s possible they’re trying to sneak in a bunch of high, unfair, and predatory charges.

💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

Upfront Payment

Determining the legitimacy of lenders requiring upfront payments can be challenging — because some reputable lenders often charge application fees and/or origination fees. If the fee comes before approval, however, that’s a red flag.

And if they’re requesting the upfront payment in an unusual way — gift cards, wire transfers, peer-to-peer transfer, etc. — that makes it even more likely it’s a scam.

No Digital Presence

A reputable lender should have an online presence in this day and age. If you can’t find the lender online or if they have a suspicious-looking website, it might be a scam.

You should never enter personal information into an unsecure website platform. Remember to find the padlock icon at the beginning of the URL in your browser’s search bar.

Also verify fishy emails and phone numbers.

Phone Offer

If a lender contacts you directly and you weren’t shopping for a loan, it’s OK to be a little cautious. Be suspicious of phone calls, mailers, and in-person visits when you haven’t requested any information.

Wire Transfers

Remember: Upfront fees before loan approval are often a sign of personal loan scams. If the lender requests that payment via wire transfer, be even more cautious. Wire transfer scams are among the most common types of bank account fraud.

Copycat Name

It’s important to look closely at a lender’s name or URL. It’s possible they’ve chosen a name similar to a legitimate lender (or a website with a similar URL and branding) to trick you into thinking they’re the real deal.

Guarantees Loan Approval

Legitimate lenders don’t guarantee loan approval without reviewing your information. Even lenders aimed at bad credit borrowers, which might not have minimum credit score requirements for a personal loan, do some kind of verification or background check.

If you see a lender that guarantees approval, that’s a major red flag.

Common Types of Personal Loan Scams

Legitimate personal loans, like SoFi’s personal loans and options from other reputable financial institutions, can be a useful tool for building credit and funding necessary purchases outside your monthly budget.

But criminals often take advantage of people’s needs with several common types of loan scams, including the following:

No-Credit-Check Personal Loan Scams

Some lenders do offer personal loans to borrowers with bad credit or no credit history at all. Even then, legitimate lenders typically do some kind of background check (unless it’s a credit builder loan).

If a lender is offering you a personal loan without ever checking your credit or background, it’s likely a scam. They may ask you to send fees in advance or may convince you to share personal information so they can steal your identity.

Live Check Scams

Be cautious if you receive an unsolicited pre-approved loan offer in the mail with a live check. Cashing or depositing that check locks you into the loan terms mailed with the check, which might include high interest rates or fees.

In general, you should not cash or deposit such checks unless you’ve read the loan terms and are ready to accept them. In most cases, you can likely find a better loan offer elsewhere — and shouldn’t accept an unsolicited offer if you weren’t in need of a loan anyway.

In a similar scam, you may receive a fake check from an unknown sender who asks you to deposit it and then wire them money (for a payment). This check could bounce after you’ve wired the money.

Student Loan Forgiveness Scams

In the wake of the Biden administration’s student loan forgiveness announcement last year, scammers began to promise loan forgiveness to borrowers in exchange for fees. The Consumer Finance Protection Bureau has officially declared this to be a scam.

Debt Consolidation Scams

Debt consolidation loans are a legitimate and common type of personal loan. However, if a debt consolidation company approaches you with an offer and is aggressive or advises you to cease communications with your creditors, it’s likely a scam.

💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

What to Do If You Are Scammed

Have you been tricked into a personal loan scam? Here’s what to do:

Gather Documents

You’ll need to compile all the physical and digital evidence you can. This includes emails, mailers, paperwork, and even phone screenshots of interactions. The authorities will need this evidence to work your case.

Contact Local Law Enforcement

Even if the scammer is far away from where you live, contacting your local law enforcement is crucial. They’ll be able to file a police report for your case.

Place a Fraud Alert

You’ll want to place a fraud alert with all three major credit bureaus and freeze your credit reports. This will prevent fraudsters from opening credit in your name.

Continue to monitor your credit report and bank statements and report any suspicious entries. Even if your bank account was not compromised, it’s a good idea to inform your financial institution as well.

Contact Agencies Specializing in Oversight

You’ll also want to contact the appropriate agencies, including the Better Business Bureau, FTC, and your state attorney general’s office. You may need to reference the police report in these communications.

Recommended: How to Report Identity Theft

The Takeaway

Personal loan scams can take advantage of borrowers when they are most in need of help. It’s important to stay vigilant when looking for a personal loan by working with reputable lenders that have a thorough application process and transparent fees.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How can you protect yourself from personal loan scams?

To protect yourself from personal loan scams, familiarize yourself with the common tricks scammers use. Only seek out personal loans from reputable lenders that you can verify online and over the phone, and make sure they do a thorough background and credit check.

What are common personal loan scams?

Common personal loan scams include loans that don’t require credit checks, offer guaranteed approval, require upfront payments, or involve a live check. Educating yourself about common personal loan scams is the best way to prevent falling victim to one.

How can you report a personal loan scam?

If you’re the victim of a personal loan scam, collect all the evidence you have, file a police report, notify your bank and all three major credit bureaus (to place fraud alerts), and file complaints with the FTC, Better Business Bureau, and your state’s attorney general’s office. Continue to monitor bank statements and your credit report.

Photo credit: iStock/fizkes

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

For most Americans, having a car is a necessity. We need it to get to work, school, the grocery, the doctor, and all our weekly errands. Unfortunately, both new and used cars are expensive — and auto loan rates are on the rise as well.

So when buying a car, does it ever make sense to use a personal loan instead of traditional financing? We’ll break down the difference between personal loans and car loans and when you might want to use the former to buy a new set of wheels.

Personal Loan vs Auto Loan: An Overview

You can use a personal loan for almost anything, including buying a car. But why would you use a personal loan to purchase a vehicle when there are very specific loans — auto loans — to finance this purchase?

As we’ll see, personal loans can offer some benefits over car loans, including less buyer risk, no down payment needed, better negotiating power, and potential savings on car insurance. But car loans still have their place and may be cheaper in the long run.

Personal Loans

A personal loan allows you to borrow money from a bank, credit union, or lender to fund nearly any kind of purchase. People commonly use personal loans for debt consolidation, home renovations, weddings, vacations, and even new and used car purchases.

Personal loans can be unsecured (no collateral required) or secured (collateral required). For the sake of our personal loan vs. auto loan comparison, we’ll be looking at unsecured personal loans, as they’re more common.

Recommended: Types of Personal Loans

How Interest Rates Work on Personal Loans

Because unsecured personal loans aren’t backed by any collateral, interest rates tend to be higher than what you’d get for a car loan. Average personal loan interest rates vary depending on your credit score and the loan terms, but typically, they max out at 36%.

Most personal loans come with fixed rates, meaning your interest rate will stay the same over the life of the loan. It is possible, however, to get a variable-rate personal loan. Check out our guide to fixed vs. variable rate loans to figure out which is right for you.

Terms for Personal Loans

Personal loan terms vary by lender, but you can typically take out a loan with a repayment term of one to seven years. The faster you pay it off, the less you’ll pay in interest — but your monthly payments will be much larger.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

Car Loans

When buying a new or used car through a dealership, the dealer’s finance department can help you find a loan through a bank or credit union. Alternatively — or when buying from a private seller — you can shop around for a car loan from various banks and credit unions on your own.

Auto loans are usually secured loans, meaning the car you’re buying serves as collateral. This means, if you fall behind on payments, the lender can repossess your car. (It’s possible, but less common and more expensive, to get a car loan without putting the car up as collateral.)

How Interest Rates Work on Car Loans

The collateral on the car loan reduces the risk to the lender, which usually results in a lower interest rate. Still, auto loan interest rates depend on your credit score.

Car loan rates for both new and used cars have increased in recent years, but they’re still typically lower than the average personal loan rate. Notably, car loan refinancing rates are lower than regular financing rates.

Terms for Car Loans

Like personal loans, car loans might stretch 84 months (that’s seven years), but some are as short as 24 months (two years). Also like personal loans, it’s common to repay your car loan over three to five years.


💡 Quick Tip: In a climate where interest rates are rising, you’re likely better off with a fixed interest rate than a variable rate, even though the variable rate is initially lower. On the flip side, if rates are falling, you may be better off with a variable interest rate.

Can You Use a Personal Loan to Buy a Car?

Yes, you can use a personal loan to buy a car. In fact, you can use a personal loan for (almost) anything. However, it often makes more sense to get traditional vehicle financing when buying a car.

Recommended: Personal Loan Calculator

Is It Better to Get a Personal Loan to Buy a Car?

In some ways, it can be better to buy a car with a personal loan. You don’t have to stress about saving up for a down payment, there’s no risk of your car being repossessed, and you might even have more negotiating power at the dealership.

However, many buyers prefer the structure of an auto loan. These loans tend to be cheaper in the long run because of the lower interest rates. And they’re easier to get — both because of lower credit score requirements for car loans and because dealerships can help you find the best car loan for you.

Pros & Cons: Car Loan vs Personal Loan

Buying a car with a personal loan instead of an auto loan has its share of advantages, but there are also drawbacks to consider.

Pros

•   Less risk: When you take out a car loan, the car itself serves as collateral for the loan. If you miss enough payments, the lender could repossess your vehicle. With an unsecured personal loan, you don’t face that risk, though there are still consequences if you default on a personal loan.

•   More negotiating power: When you don’t have to go through the hassle of securing financing, the car buying process is much easier and faster for you and the dealer. That means you might be able to negotiate a better deal, like a discount for paying in full.

•   Lower insurance costs: When financing a car, the lender may require you to carry comprehensive, collision, and gap insurance. But when you pay for the vehicle outright with the funds from your personal loan, no one can require you to carry those car insurance coverages.

•   No need to save for a down payment: Personal loans don’t require a down payment. Though some have origination fees, you might even be able to roll those into the cost of the loan. That means you could use a personal loan to get a car with no money down.

Cons

•   Higher cost: Interest rates are typically higher for personal loans, which means you’ll end up spending more money on your car in the long run than you would if you got traditional auto financing. Origination fees for personal loans may also be higher than they are for car loans.

•   Higher credit score requirements: Because auto loans are secured by the vehicle being financed, lenders are a little more willing to work with lower credit scores. The credit score you need for a personal loan is typically higher (around 670), though this varies by lender.

•   More insurance risk: There may not be an auto lender requiring you to carry comprehensive, collision, or gap insurance, but declining those coverages just because your personal loan lender doesn’t mandate them could open you up to a lot of risk. If your car is totaled and you don’t have the proper coverage to get reimbursed, you’ll still be on the hook for making your personal loan payments — so think carefully before minimizing your car insurance coverage.

The Takeaway

Both auto loans and personal loans can help you get behind the wheel of a new (or used) daily driver. Determining which type of loan is right for you comes down to your needs and preferences.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Is it easier to get a personal loan or car loan?

Getting a car loan is usually easier than getting a personal loan. That’s because car loans are secured by the vehicle you’re buying. That means less risk to the lender, who will be willing to accept lower credit scores.

Should I take out a personal loan to buy a car?

While you can get an auto loan through a bank, credit union, or the dealership, you can also pay for a car with a personal loan. Personal loans reduce your risk — there’s no chance of your car being repossessed — and they may give you more negotiating power. However, personal loans typically cost more in the long run.

Am I allowed to use a personal loan to buy a car?

Yes, you can use a personal loan to buy a new or used car. In fact, you can use personal loans for just about anything. Just read the fine print of any loan agreement to make sure.

Photo credit: iStock/skynesher

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Impact investing is a strategy that seeks to create both financial return and positive social or environmental impact. Impact investments can be made in both publicly traded companies and private companies or funds, and can take the form of equity, debt, or other assets.

In recent years, many investors have become increasingly aware of potential adverse societal effects to which their investments may contribute. These can include effects on health, the environment, and human rights. As such, large firms and foundations have increasingly decided to put capital to work to minimize these negative effects. For investors, it helps to be aware of the growing trend of impact investing to determine whether it is a suitable wealth-building strategy for a portfolio.

How Does Impact Investing Work?

Impact investing is typically, but not always done by large institutional investors and private foundations, though individual investors can do it as well. These organizations invest in various areas, including affordable housing, clean water, and renewable energy. Impact investments in these areas can benefit both developed and emerging markets.

The term “impact investing” is relatively new, but the concept of investing for both financial return and social good is not. Impact investing began in the early 1900s, as numerous philanthropists created private foundations to support their causes.

The concept of impact investing has expanded to include a broader range of investors and investment vehicles. Impact investing may be practiced by individuals, foundations, endowments, pension funds, and other institutional investors.

The growth of impact investing has been fueled by several factors, including the rise of social media and the increasing availability of data and analytics. Impact investing is also being driven by the growing awareness of businesses and investors’ role in solving social and environmental problems. Individual investors can take this new knowledge and consider index funds that focus on various causes.

Characteristics of Impact Investments

As outlined by Global Impact Investing Network (GIIN), the following are considered characteristics of credible impact investments:

•   Investor intentionality: An investor must intend to make a measurable positive impact with their investment. This requires a certain level of transparency about both financial and impact goals. The investor’s intent is one of the main differentiators between traditional investments and impact investments.

•   Utilize data: Impact investments must use data and evidence to make informed decisions to achieve measurable benefits.

•   Manage impact performance: Specific financial returns and impact goals must be established and managed.

•   Contribute to the growth of the industry: The goal of impact investments is to further social, economic, or environmental causes. Impact investing toward these goals must be intentional and measured, not just guesswork.

Impact Investing vs Socially Responsible Investing

Impact investing is often associated with “socially responsible investing” (SRI). Both SRI and impact investing seek to generate positive social or environmental impact, but they differ in some ways.

SRI typically focuses on actively avoiding investments in companies involved in activities that are considered harmful to society, such as the manufacture of tobacco products or the production of weapons. SRI also typically focuses on promoting corporate policies considered socially responsible, such as environmental sustainability or gender diversity.

In contrast, impact investing focuses on making investments in companies or projects that are specifically designed to generate positive social or environmental impact.

Impact Investing vs ESG

The main difference between impact investing and ESG (environmental, social, and governance) is that impact investing is focused on investments that are expected to generate a positive social or environmental impact. In contrast, ESG considers a range of environmental, social, and governance factors in investing decisions.

Why Is Impact Investing Important?

While some investors may not think impact investing is important at all, others may think the exact opposite. For those investors, impact investing may be considered important for a few key reasons.

First, it allows investors to put their money into companies or projects that they believe will positively impact society or the environment. Second, impact investing can help attract more capital to social and environmental causes.

When more people invest in companies or projects that aim to make a difference, it can help to increase the amount of money and resources available to make positive change happen. Those investments, however, may not offer the best opportunities to generate returns. While there’s no way to know for sure how an investment will shake out over time, investors should familiarize themselves with the concept of opportunity costs.

Finally, impact investing can help create jobs and support businesses working to improve society or the environment. This can have a ripple effect, as these businesses often provide goods or services that benefit the community.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Examples of Impact Investing

Impact investing is usually done by institutional investors, large asset managers, and private foundations. Some of the largest foundations and funds focused on impact investing include, but are not limited to:

•   The Bill & Melinda Gates Foundation: This foundation has a $2.5 billion Strategic Investment Fund. This fund makes direct equity investments, provides low-interest loans, and utilizes other impact investing tools in promoting global health and U.S. education.

•   The Ford Foundation: The foundation has committed to invest a portion of its endowment to address social problems while seeking a risk-adjusted market rate of financial return. Its mission-related investments are focused on affordable housing, financial inclusion, and other areas in the U.S. and across the Global South.

•   The Reinvestment Fund: The Philadelphia-based nonprofit finances housing projects, access to health care, educational programs, and job initiatives. It operates primarily by assisting distressed towns and communities in the U.S.

Types of Impact Investments

There are various impact investment areas, including but not limited to microfinance, renewable energy, sustainable agriculture, and affordable housing.

Impact investments don’t have to be equity investments either; they come in many different investment vehicles, like bonds and alternative investments.

Evaluation Methods for Impact Investors

There are many ways to measure impact investments. The United Nations Sustainable Development Goals (SDGs) are a popular framework for measuring impact. The SDGs are a set of 17 goals that the United Nations adopted in 2015.

The SDGs include goals such as “no poverty,” “zero hunger,” and “good health and well-being.” Each SDG has a specific target to be achieved by the year 2030.

Impact investors often seek to invest in companies or projects that will help achieve one or more of the SDGs. For example, an impact investor might invest in a company working on a new technology to improve water quality, contributing to the SDG goal of ensuring access to water and sanitation for all.

Another popular framework for measuring impact is the Impact Management Project (IMP). The IMP is a global initiative that seeks to develop standards for measuring and managing impact.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

How to Start an Impact Investment Portfolio

Though foundations and institutional investors are the heart of the impact investing world, individual investors can also make investments in companies and funds that may positively impact society. Here’s how to do it.

1.    Decide what type of investment you want to make, whether that’s in a stock of a company, an exchange-traded fund (ETF) with an impact investing strategy, or bonds.

2.    Next, research the different companies and funds, and find a diversified selection that fits your desires.

3.    Finally, make your investment with a brokerage and monitor your portfolio to ensure that your investments have a positive impact.

In order to become an impact investor, it’s wise to consider both the financial potential of an investment, as well as its social, environmental, or economic impact.

Some investors have a higher risk tolerance than others, and some might be willing to take a lower profit in order to maximize the potential positive impact of their investments.

The Takeaway

Impact investing involves making investments with aims of improving certain outcomes in the world, which may come at the expense of potential returns. There is no one-size-fits-all answer to how to balance financial return and social or environmental impact. Impact investors must make investment decisions that are aligned with their values and objectives.

Not all impact investments are created equal. Some impact investments may have a higher financial return potential than others, but may also have a lower social or environmental impact. Similarly, some impact investments may have a higher social or ecological impact but may also have a lower financial return potential. Impact investors must consider both financial return and social or environmental impact when making investment decisions.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).