Personal Loan Scams: What You Should Look Out For

By Timothy Moore · May 07, 2024 · 8 minute read

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Personal Loan Scams: What You Should Look Out For

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. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.


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

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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