While the widespread use of smartphones has led to convenient options such as online banking, it has also, unfortunately, made it much easier for scammers to defraud victims.
Right from the stranger online who’s offering you Dallas Cowboys vs. Eagles NFL tickets for cheap to the executive from the IRS asking you to buy Target gift cards to pay pending taxes, a lot of people are out there waiting to dip into your hard-earned money.
Among financial scams, loan scams are a common type, targeting gullible individuals who need money. Read on to learn how to spot the warning signs and identify a loan scam.
How Loan Scams Work
Perhaps the most common loan scams involve scammers who offer instant loan money through minimum documentation. These scams work through fraudulent loan apps. Once you install one of the apps on your phone, you are asked for various unnecessary permissions such as access to your photos, contacts, microphone, messages, and others. Then, you need to submit your bank account details and related documents.
Many of the apps do credit the loan amount into your bank account. However, you are charged with high interest as soon as the amount is credited. Even if you do repay the entire loan amount and interest, you are charged additional fees and asked to pay up in a few days.
If you do not pay, the scammers threaten to leak your private documents and circulate defamatory messages among your contacts. Such tactics force people to keep paying way more money than they owe, along with other consequences such as slipping into depression and developing suicidal tendencies.
Phishing can occur with all types of scams, and loan scams are no exception. Phishing occurs when a scammer sends an e-mail or text message to their potential victims, often with a link to a seemingly legitimate banking website offering loans.
However, this website was likely created by the scammer to collect the personal information, including bank account numbers and passwords, of their victims.
Once a victim has entered any personal banking information into the website, the scammer then uses that information to deduct money from the victim’s bank account or credit card.
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Payday and Cash Advance Loans
While not all of these may be scams, payday and cash advance loans are not usually trustworthy loans to take advantage of. In most cases, these loans are given to customers who may not be able to repay them, and, if they find themselves unable to pay, more loans are given to pay back original loans.
They often come with heavy fees that cause customers to become deeper in debt than they originally were, only to benefit the businesses offering the loans.
Typical Signs of Loan Scams
Guaranteed Loan Approval
If someone offers you a loan without requiring a credit score check, be cautious. Loans that offer guaranteed approval, regardless of the borrower’s income or credit report, may be a scam. This is because scammers can offer their fake loans to more people by not making any requirements to receive the loan, therefore reeling in more victims.
Many scammers want their victims to hand over their money as quickly as possible, and you should always be careful when a lender pressures you in any way to apply for a loan fast. Scammers can create a sense of urgency by offering a limited-time deal, remaining in constant contact with potential victims, or simply telling potential victims to act before they lose the chance to obtain their loans.
By pressuring their victims to move quickly, scammers can make them overlook the signs of the loan being a scam.
Significant Debt Relief for a Small Fee
Many scammers prey on people with debt by offering the easy disappearance of debt for a seemingly small fee. However, even legitimate debt relief businesses cannot make debt truly disappear, and loan borrowers should beware of anyone offering an easy fix for their debt.
A lot of scammers offer debt settlement for student loans, home mortgages, and credit card payments, which is an attractive offer for many borrowers.
Typically, scammers who offer this type of relief will contact their victims through e-mail or text message, just as in phishing scams, and then will offer loan relief for a fee that victims will pay directly to the scammer.
At that point, the scammer will disappear, leaving victims with less money and the same amount of debt as they had in the first place.
No Website Security
All legit banking websites should have a web address that begins with “https,” and any financial website that lacks the “s,” which stands for “secure”, is not usually trustworthy. This is often overlooked by internet users, but it is a good tip to look for when you need to determine if a website is legit or possibly created by a scammer.
Do note that fraudulent websites too can purchase SSL certificates which make their web addresses include “https”.
Requests for Untraceable Payments
While you shouldn’t have to pay upfront fees for any loans, you should also be wary of loans that offer repayment options in the form of untraceable money.
Untraceable money can include things like prepaid debit cards, gift cards, and cryptocurrency, all of which cannot be detected by government agencies. In some cases, cash-only payments may also be a sign of a scam. This makes it easier for scammers to take your money and run without being caught by any law enforcement agencies later.
While loan scams are everywhere these days, they can certainly be avoided if you look for warning signs, such as a suspicious-looking loan website without “https” or a loan offered with guaranteed approval and barely any documentation.
In general, be sure to do in-depth research about the website or app that you plan to take the loan from. When in doubt, it is always good to stick to legitimate sources such as banks or popular fintech companies.