How to Avoid Personal Loan Scams And Protect Your Finances

Personal loans are one of the most popular options for those seeking financial assistance. However, with the rise of these instantly available loans, there has also been an increase in the number of scams targeting unsuspecting victims. Scammers presenting themselves as legitimate lenders use a variety of tactics to deceive individuals into providing sensitive information, such as their government IDs, bank details, OTPs, etc., or even paying an up-front processing fee for a loan that will never be sanctioned!

Hence, it is crucial for consumers to be aware of these scams and to take the necessary precautions to protect their finances. While it may sound challenging, with a little research and caution, you can avoid falling victim to such scams. This article elucidates the different types of personal loan scams and how you can protect yourself from falling prey to these scams.

Different Types of Personal Loan Scams

1. Advance Processing Fee Scam:

In an advance processing fee scam, the scammer demands an advance fee for processing the loan that never gets sanctioned. The victim is promised a loan but is asked to pay the processing fee upfront. Once the victim pays the fees, the scammer disappears with the money.

However, take note that the lenders do not charge upfront fees, and the processing fee is either added to the principal loan amount or required to be paid after the loan is sanctioned. If the lender asks you to pay the processing fee in advance, it is advisable to do some online research and verify the legitimacy of the lender before proceeding.

2. Phishing Scam:

A phishing scam is another common type of personal loan scam where the fraudster claims to be a legitimate lender and asks for sensitive information such as PAN card details and bank details, among others, for processing the loan. This information is further used to steal money from the victim's bank account. In some cases, the fraudsters use this information to take out loans in the victim's name, which can seriously affect the victim's credit score.

Hence, it is important to be cautious of unsolicited loan offers and never share personal or financial information with anyone unless you completely trust them.

3. Unsolicited Loan Offers:

In unsolicited personal loan offers, the fraudster offers a loan at a very low-interest rate to individuals in urgent need of money and asks for an advanced processing fee, which is never refunded or asks to share the OTP, which is used to steal money from your bank account or credit card.

This scam is designed to take advantage of people who are in desperate need of cash and looking for quick and easy access to credit. Understand that if the offer seems too good to be true, it certainly is!

4. "No credit check required" or "guaranteed loan approval" offers:

A personal loan is an unsecured loan that is offered without any collateral. Hence, credit score plays an important role in personal loan approval. If the lender claims their personal loan is sanctioned without checking the credit score, you should be extra cautious and avoid falling prey to such fraudsters.

5. Time-bound Offers:

Time-bound offers are temporary loan promotion offers that are only available for a specific short duration. Fraudsters may use these offers to take advantage of people in need of quick cash by claiming to provide a discounted processing fee or limited-time loan offer. This creates a sense of urgency and can trick people into acting quickly.

It is important to understand that legitimate lenders rarely offer such time-bound offers. So, if the lender claims that the offer is for a short period only, it is necessary to verify the lender's legitimacy before proceeding.

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Here's How You Can Protect Yourself from Falling Prey to Personal Loan Scams

1. Verify the legitimacy of the lender:

Before applying for a personal loan, it is important to verify the legitimacy of the lender. You can do some online research and find out if the lender is registered with the Reserve Bank of India (RBI) or the National Housing Bank (NHB). You can also check for online reviews and ratings of the lender to see if they have a good reputation.

2. Be wary of unsolicited loan offers:

You should be cautious if you receive a loan offer from an unknown source, particularly when you have not enquired about the loan. Legitimate lenders will not contact you unsolicited with a loan offer. Be especially wary of loan offers that claim "no credit check required".

3. Never share personal or financial information with anyone:

Be cautious of phishing scams where the fraudster claims to be a legitimate lender and asks for sensitive information such as bank details, PAN numbers, OTPs, etc. Never share your personal or financial information with anyone.

4. Never pay an advance processing fee:

Genuine lenders will not ask for an advance fee for processing a loan. If you are asked to pay an advance processing fee, it is likely a scam.

5. Check for hidden fees and charges:

Before applying for a personal loan, thoroughly read the terms and conditions of the loan agreement to check for hidden fees and charges. Make sure you are aware of all the charges that come with the loan and any penalties for defaulting on the loan.

6. Be cautious of unrealistic interest rates:

Be careful of loan offers that have unrealistic interest rates. It is important to compare loan offers from multiple lenders to ensure you are getting a competitive interest rate.

7. Use a loan EMI calculator:

Before applying for a personal loan, use a Personal Loan EMI Calculator to estimate your monthly loan repayments based on the loan amount and interest rate offered. This will help you determine if you can afford the loan and avoid taking on more debt than you can handle.

To wrap up, personal loan scams can be a major financial burden for individuals. By following these tips, you can protect yourself from falling prey to personal loan scams. Always be cautious of unsolicited loan offers, thoroughly research the lender, and never share personal or financial information with anyone. By taking the necessary precautions, you can ensure that your personal loan experience is safe and secure.

Stay secure!

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.