How to avoid being scammed when looking for a loan

Scams

Personal loan scams increase your financial vulnerability and can even trap you in a vicious cycle of debt. Here’s how to avoid being scammed when considering a loan.

March 26, 2024
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6 min. read

Times have been tough financially for many of us since the pandemic. Climate shocks, food and energy price rises and persistent inflation elsewhere have squeezed household spending and put huge pressure on working families, with high interest rates in much of the Western world only making matters worse. As usual, cybercriminals are waiting in the wings to see how they can capitalize on others’ misfortune. In some cases, they do this through loan fraud.

Understanding Loan Fraud

Loan fraud can take many forms. But at its heart, it uses the lure of no-strings-attached loans to hook up vulnerable internet users. This can occur especially at certain times of the year. The UK’s financial regulator, the Financial Conduct Authority (FCA), warned last December of an increase in loan fee fraud after it claimed that more than a quarter (29%) of UK parents had borrowed money, or were planning to. to do this in the run up to Christmas.

In the UK, losses to loan fee fraud average £255 ($323) per victim. This is a potentially significant amount for someone who is already struggling to pay the bills. Those most at risk are young people, senior citizens, low-income households and individuals with low credit scores. Scammers know these groups are among those hardest hit by the current cost of living crisis. And they have developed various strategies to trick users into handing over their cash.

Take a closer look at the following schemes to stay safer online.

Top loan fraud threats

There are a handful of loan fraud scams, each using slightly different tactics.

1. Loan fee (advance fee) fraud

Probably the most common type of loan fraud, it usually involves a scammer posing as a legitimate lender. They will claim to offer a no-strings-attached loan, but request that you pay a small fee up front to access the cash. The scammers will then disappear with your cash.

They may say the fee is for ‘insurance’, an ‘admin fee’ or even a ‘deposit’. They may also say it’s because you have a bad credit rating. Usually the scammer will claim that it is refundable. However, they will often request that it be paid in cryptocurrency, via a money transfer service, or even as a gift card. This will make it virtually impossible to recover any lost funds.

2. Student loan fraud

One particular variety of loan-themed scams targets people eager to get funding for their education and recent graduates burdened by tuition and other educational expenses. These schemes also involve enticing loan terms or even debt forgiveness, false loan repayment assistance, fraudulent promises to cut monthly payments, consolidating multiple student loans into a more manageable “package,” or negotiating with lenders on behalf of borrowers – in exchange for advance. fees for these “services”. Unsuspecting individuals are often tricked into handing over their personal and financial information, which the scammers then use for identity theft or fraudulent purposes.

3. Loan Phishing Fraud

Some scams may involve the fraudster asking you to complete an online form before the loan can be ‘processed’. However, doing so will directly hand over your personal and financial details to the bad guys for use in more serious identity fraud. This can be run in conjunction with an advance fee scam, resulting in the loss of both money and sensitive personal and bank account information.

4. Malicious loan programs

In recent years, ESET has observed an alarming increase in malicious Android applications disguised as legitimate loan applications. At the beginning of 2022, it notified Google of 20 of these scam apps that had more than nine million combined downloads on the official Play Store. Detections of “SpyLoan” apps increased by 90% between H2 2022 and H1 2023. And in 2023, ESET found another 18 malicious apps with 12 million downloads.

SpyLoan apps lure victims with the promise of easy loans via text messages and on social media sites such as X (formerly Twitter), Facebook and YouTube. They often fake the branding of legitimate loan and financial services companies in an attempt to add legitimacy to the scam. If you download one of these apps, you will be prompted to confirm your phone number and then provide extensive personal information. This can include your address, bank account information and photos of ID cards, as well as a selfie – all of which can be used for identity fraud.

Even if you don’t apply for a loan (which will be rejected anyway), the app developers can then start harassing and blackmailing you into handing over money, possibly even threatening physical harm.

5. Payday loan scams

These scammers target individuals who need quick cash, often those with poor credit or financial problems. As with the other varieties, they promise quick and easy loan approval with minimal documentation and no credit check, exploiting the urgency of the borrower’s financial situation. To apply for the loan, the scammer often asks the borrower to provide sensitive personal and financial information, such as their social security number, bank account details and passwords, and uses it for identity theft and financial fraud.

RELATED READING: 8 Common Work-From-Home Scams to Avoid

6. Loan repayment fraud

Some scams require more advance scouting from the criminals. In this version, they will target victims who have already taken out loans. By defrauding that loan company, they will send you a letter or email claiming you missed a repayment deadline and demanding payment plus a penalty fee.

7. Identity fraud

Again a slightly different approach is to steal your personal and financial details – perhaps through a phishing attack. And then to use it to take out a loan in your name with a third party provider. The scammer will max out the loan and then disappear, leaving you to pick up the pieces.

How to stay safe from loan fraud

Watch out for the following red flags to stay safe:

Guaranteed approval of a loan Request for advance payment of a fee Unsolicited contact by the loan company Pressure tactics and a sense of urgency, which is an extremely popular trick among scammers of various types A sender email address or website domain that does not match the company name No fine print to check the loan itself

Also consider the following precautions:

Investigate the company purporting to offer the loan Never pay an upfront fee unless the company sends an official notice detailing the terms of the loan and reasons for the extra charge (which you must agree to in writing) Always use anti-malware on your computer and multi-factor authentication (MFA) to reduce the chances of data theft Don’t reply directly to unsolicited emails Don’t share too much online – scammers may be scanning social media for any opportunities to steal your financial situation prey Only download apps from official Google/Apple app stores Make sure your mobile device is protected with security software from a trusted vendor. Don’t download apps that ask for excessive permissions Read user reviews before downloading any app. Report suspected scams to the appropriate authorities, such as the Federal Trade Commission (FTC) or Consumer Financial Protection Bureau (CFPB)

As long as there are people who need financing, loan fraud will be a threat. But by remaining skeptical online and understanding the scammers’ tactics, you can stay out of their clutches.