6 Personal Loan Scams Online to Know and Avoid


Thieving identity, personal details, banking information on the internet have become common threats. These days, several fraudsters online try to gain access to bank account of people or misuse their credit card, debit card, payment wallet details, etc for their own benefit. Such is the scenario even in cases of personal loans. If someone wishes to apply for a personal loan online, then they must be aware of the possible scam-situations, and how to escape the same.

Below are 6 common personal loan scams seen on the internet

6 Personal Loan Scams Online to Know and Avoid

1. Advance Fees and Collateral

A fraud can be detected regarding personal loan, if the financial institution asks for upfront collateral or fee. They may ask for registration and origination fee and ask the borrower to send the amount into their bank account, so that the loan application can be processed.

Scammers may even demand vital information such as that of credit card or debit card, and tell the applicant to submit a security deposit or collateral before making the loan agreement or sanctioning the loan.

The scammers may promise the customer that they will not to touch the money on the card, but just take the details for security, however, once the details are provided, all the money is drained and they never revert afterwards.

Legit providers may charge processing fees and other charges on loan, but these will be part of the loan cost, and mentioned in the loan agreement. No advance payment will be asked.

2. No Credit Check

The lenders make money from the interest payment collected on the loans. A borrower is always charged an interest rate on the loan amount, making repayment an important factor for banks/NBFCs to earn over the loans. This is why financial institutions will check for credit history of the borrower.

Credit score and history of the person tells about the financial journey and behavior such as loans repaid, outstanding payment, missed/delayed payments, default at loans etc.

An unsecured loan such as a personal loan will never be granted without a proper credit check. To get best rate offer and approval for a personal loan, a person requires 700+ credit score. If any lending institution claims to perform no credit check and offers loans without even considering credit history of the applicant, then this is a sure sign of a fraud.

Legit fund providers do two checks, firstly, a soft inquiry and then a hard inquiry. In the former, they will verify the loan application information that is usually not there in the credit report, like employment, monthly income etc. Them the hard inquiry reveals the credit behavior of the applicant.

3. Absence of a Physical Address

Though there are several providers and aggregators that may not have a concrete physical address but, still, if the address is missing, it could be a warning sign that the company is fraud.

Sometimes fraudsters provide a wrong address and people take that on the face value. It is must to look for the registered address of the office of online lenders. Check the address on Google Map and check the PO Box address as well.

4. Poor Layout and Misspelled Words

Another warning of a personal loan scam is that marketing material a person receives is full of errors in terms of spellings and personalization, such as ‘Dear ,’. Notice the space after ‘Dear’.

Usually, the name of the lead must be here, but scammers just populate the data and send bulk emails to people randomly. There could be silly grammar and spelling mistakes. The layout and presentation of the material could be awkward.

They may demand the individual to reply back with essential details such as monthly income, employer address, home address, bank name and branch details, bank account number, etc. Some may come ahead with pre-approved offers, which follow similar traits that could indicate a fraud.

5. Unregistered Financial Institutions

If an applicant is applying for a loan via an aggregator or directly to a bank or NBFC, then he/she should verify the company/provider is registered to function as a loan/service provider or not. Ask for GSTIN or relevant information that can keep a check on the validity of the business.

Research by inquiring old customers about the provider, or reading internet news about the company before registering with them or giving any fees or confidential details, such as personal and banking information. Personal loan scams usually are done by unregistered financial institutions or businesses.

6. Emails Containing Unbelievable Promises and Benefits

It is not uncommon to receive emails from companies or organizations that an individual never communicated with.

However, it could be something of a worry of a personal loan provider offers bonus or money or any commission, slashes rate of interest, which is not usually the protocol followed by leading banks and NBFCs.

The email scams happen everywhere and in lending sector as well. The scammer may have a malicious virus or software in the link that it urges to click.

On clicking all personal and confidential details may be accessible to the fraud-company, who is interested to only steal identities and disrupt the finances of the person.

The email address will also be different. The fraudster may assume name of a popular bank/NBFC and use another email extension to make it sound genuine, but you should always check for their official address and verify the information. If the email seems suspicious then do not click on any link or download any attachments in the email.

Go through the above-mentioned personal loan frauds and scams, and be safe when accessing and applying for a personal loan on the internet.

Author:  Satchit Hasabnis is a Chartered Financial Analyst who has more than 10 years of experience in the industry. He co-founded, Loanbaba.com, which provides quick and easy loans like Personal loan, Small Cash Loan, Education Loan, Business Loan, and Gold Loan etc to people of different economic background.