How to avoid getting scammed when looking for a loan

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Personal loan scams take advantage of your financial vulnerability and can even put you in a vicious cycle of debt. This way you can avoid being scammed when considering a loan.

loans scams online

Since the pandemic, times have been tough financially for many of us. Climate shocks, food and energy price increases and persistent inflation elsewhere have pressed family spending and putting enormous pressure on working families, with high interest rates in much of the Western world making matters worse. As usual, cybercriminals are waiting in the wings to see how they can profit from the misfortune of others. In some cases they do this through loan fraud.

Understanding loan fraud

Loan fraud can take different forms. But essentially it uses the appeal of no-obligation loans to attract vulnerable internet users. It can mainly occur during certain times of the year. The British financial regulator, the Financial Conduct Authority (FCA), warned last December on a rise in loan fee fraud after it was claimed that more than a quarter (29%) of British parents have borrowed money or are planning to do so in the run-up to Christmas.

Losses in Great Britain due to loan fee fraud average £255 ($323) per victim. That’s a potentially significant amount for someone who is already struggling to pay the bills. Young people, seniors, low-income households and individuals with low credit scores are especially at risk. Scammers know that these groups are among the hardest hit by the current cost of living crisis. And they have developed several strategies to trick users into handing over their money.

Check out the following arrangements to stay safer online.

The biggest threats to loan fraud

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

1. Fraud with loan costs (advance costs).

Probably the most common form of loan fraud. This usually involves a scammer pretending to be a legitimate lender. They will claim to offer a no-obligation loan, but ask you to pay a small fee up front to access the money. The scammers then disappear with your money.

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They may say the fee is for “insurance,” “administration fees,” or even a “deposit.” They may also say this is because you have bad credit. Usually the fraudster will claim that it is refundable. However, they often request payment in cryptocurrency, via a money transfer service or even as a gift card. This makes it virtually impossible to recoup lost money.

2. Student loan fraud

One specific form of loan-themed fraud targets people eager to secure financing for their education, as well as recent graduates burdened by tuition and other educational expenses. These schemes also include tempting loan terms or even debt forgiveness, bogus loan repayment assistance, fraudulent promises to reduce monthly payments, consolidating multiple student loans into a more manageable “package,” or negotiating with lenders on behalf of the borrowers – in exchange for prepaid loans. 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

In some scams, the fraudster asks you to fill out an online form before the loan can be ‘processed’. Doing so will transfer your personal and financial information directly to the bad guys for use in more serious identity fraud. This can involve advance fee scams, resulting in the loss of money as well as sensitive personal and bank account details.

4. Harmful lending apps

In recent years, ESET has noticed a worrying increase in malicious Android apps disguised as legitimate lending apps. In early 2022, it notified Google of 20 of these scam apps that had more than nine million downloads on the official Play Store. Detection of “SpyLoan” apps are up 90% between the second half of 2022 and the first half of 2023. And in 2023, ESET found another 18 malicious apps with 12 million downloads.

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Figure 3 Apps available in official stores for iOS and Android in 2020
Fraudulent lending apps (read more here)

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 spoof the branding of legitimate loan and financial service providers in an attempt to add legitimacy to the scam. When you download one of these apps, you’ll be asked to confirm your phone number and then provide extensive personal information. This includes your address, bank account details 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 may start harassing and blackmailing you into handing over money, possibly even threatening bodily harm.

5. Payday loan scams

These scammers target people who need money quickly, often people with bad credit or financial problems. As with the other variants, they promise quick and easy loan approval with minimal documentation and no credit check, taking advantage of 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 information, and passwords, in order to use it for identity theft and financial fraud.

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6. Loan repayment fraud

Some scams require more advance reconnaissance from the criminals. In this version they focus on victims who have already taken out a loan. By fooling the lender, they will send you a letter or email claiming that you missed the repayment deadline and demanding payment plus a penalty.

7. Identity fraud

A slightly different approach is to steal your personal and financial information – perhaps via a phishing attack. And then use it to take out a loan in your name with a third party provider. The scammer maxes out the loan and then disappears, leaving you to pick up the pieces.

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How to protect yourself from loan fraud

Look for the following red flags to stay safe:

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

Also keep the following precautions in mind:

  • Research the company that claims to offer the loan
  • Never pay a prepayment unless the company sends an official notice outlining the terms of the loan and the reasons for the additional charges (which you must agree to in writing).
  • Always use anti-malware on your computer and multi-factor authentication (MFA) to reduce the chance of data theft
  • Do not respond directly to unsolicited emails
  • Don’t share too much online: scammers may scan social media looking for opportunities to take advantage of your financial situation
  • Only download apps from the official Google/Apple app stores
  • Make sure your mobile device is protected with security software from a reputable vendor
  • Don’t download apps that ask for excessive permissions
  • Read user reviews before downloading an app
  • Report suspected scams to the appropriate authorities, such as the Federal Trade Commission (FTC) or the Consumer Financial Protection Bureau (CFPB)

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

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