How to Spot a Loan Scam

Loan scams happen when criminals deceive you into paying for a loan that doesn't exist. Instead of getting a much-needed personal loan, you'll be swindled out of your hard-earned money. There are times when scammers pretend to be from established lenders and harass people into making repayments for loans they've never taken out.

To spot a loan scam, you need to know the warning signs. Here are common tactics scammers use to trick unsuspecting individuals:

Unsolicited calls, emails, or text messages

When it comes to loans, borrowers are the ones to approach the lender, not the other way around. If someone is suddenly calling or messaging you about an unbelievable deal on a loan, that should trigger alarm bells. It's highly unusual for lenders to contact borrowers directly to offer loans.

Legitimate lenders are unlikely to cold call potential customers. In case you are approached by someone offering a loan, avoid giving them any personal information and end the call immediately or delete their message.

Offers guaranteed approval

Those who have bad credit or are having a hard time qualifying for actual loans are the ones targeted by this particular tactic. Scammers often lure people in by saying loan approval is guaranteed, with no credit checks or anything to check the borrower's current financial situation. But real, trustworthy lenders will never promise guaranteed approval for loans.

Lenders go through a meticulous process before approving every loan. They review a borrower's likelihood of defaulting on the loan, do extensive credit checks, and look at a borrower's financial history carefully. Be wary of any 'lender' telling you that they don't do any of these necessary checks and that your credit won't affect your loan.

Asks for fees first before the loan

Scam lenders often ask people to pay an upfront fee for processing or insurance before they can move forward with the loan application. Some scammers may also ask you to pay a percentage of the total loan amount even before you're approved or sign the appropriate papers. You may be instructed to pay using unusual methods, such as gift cards or cryptocurrency.

Credible lenders won't ask potential borrowers to pay for fees before they're approved for a loan. When you take out a loan from a reputable lender, the costs and associated fees will be clearly stated in the terms and conditions. A lender won't ask you to pay them to process your loan application.

Pushy or aggressive demeanour

You can spot a scammer by the way they present themselves. If a lending representative calls you out of the blue and starts pestering you to take out a loan, it's most likely a scammer pretending to be a lender.

A scammer will try to pressure you into giving them information or money so you can get a 'loan'. They could badger you with emails or text messages, or perhaps call you nonstop until you agree to take out the loan. When this happens, it's important not to get confused or frazzled. Always keep your wits about you, and if a 'lender' gets too demanding, it's best to disengage and block the caller or sender.

Not a registered business

One of the telltale signs of a fake loan and lender is when they can't provide any licenses or documents to prove their legitimacy. If you're sceptical of a lender, search for their Australian Business Number (ABN) or Australian Company Number (ACN) on the Australian Business Register website.

Looking into their online reviews can also give you insight into whether a 'lender' is a legitimate business or not.

Extremely favourable terms

Scammers often advertise loans with incredibly low, or even zero, interest rates and extremely favourable terms to entice those who are eager to apply for loans. But if it sounds too good to be true, it probably is.

Legitimate lenders may offer discounted rates, but it won't reduce rates or prices where borrowers only pay a pittance for their loan. At the end of the day, lenders are operating a business. It won't make sense for them to offer a loan that leaves them operating at a loss.

No address or contact information

One of the easiest ways to verify if a 'lender' is who they claim to be is by requesting their physical address and other contact information. Real lenders will have a physical address, even if it's just for their main office, and numerous ways you can get in touch with them (e.g., telephone number, email addresses, contact information of specific employees).

A 'lender' that can't provide you with basic information about their business and how to contact them should be treated with suspicion.

What do you do if someone is trying to scam you?

If you think someone is trying to scam you, it's best to report it to ScamWatch. Doing so can help stop scams and protect others from falling victim to scammers.