Loan Scams: Warning Signs and How to Avoid Them

An advance-fee loan scam promises you a loan no matter your credit history, then asks you to pay a fee before the money arrives. There is no loan and no lender. Legitimate lenders check your credit and income and never make you pay for a promise, so the request for money up front is the warning sign.

What the scam looks like

The FTC describes the pattern this way. Scammers say they will get you a loan, a credit card, or access to credit, or that they will connect you with a lender who can almost certainly help, no matter your credit history. But first, you must pay. The payment might be labeled a processing fee, an insurance fee, an application fee, or paperwork. Once you pay, the scammer and your money disappear.

These offers often target people who have bad credit or who have had trouble getting a loan. Scammers place ads, often online, or call with the offer. Many buy lists of people who have searched or applied for loans online.

Warning signs to watch for

• Approval promised regardless of your credit history. Real lenders evaluate your credit report, confirm your application information, and decide whether you are likely to repay before making a firm offer.
• Fees that are not disclosed clearly before you apply. You are told you were approved, then asked to pay before the money is released.
• A demand to pay up front for a promise. Nobody legitimate tells you that paying a fee will get you a loan.
• Payment by gift card, wire transfer, or cryptocurrency. These methods are hard to reverse and are favorites of scammers.
• A phone call offering a loan for a fee. Under the FTC's Telemarketing Sales Rule, it is illegal for a telemarketer to promise a loan and ask you to pay before it is delivered.
• Urgency and pressure. A "rate that expires today" is designed to stop you from checking.

How to protect yourself

• Check whether the lender is registered in your state. Lenders generally must register where they do business. Contact your state's banking or financial services regulator to find out. The CFPB has a tool that points you to your state's bank regulator.
• Search the company. Look up its name with words like review, complaint, or scam, and search the phone number to see whether others have reported calls from it.
• Hang up on robocalls. If you hear a recorded sales pitch, hang up and report it.
• Never pay for a promise. If someone asks you to pay in advance for a loan, a credit card, debt relief, or mortgage help, walk away.
• Guard your personal information. Be cautious about giving out sensitive details such as your Social Security number or bank account information to an unsolicited caller.

If you already paid a scammer

Act quickly. Scammers often ask for payment in ways that make it hard to get your money back, such as gift cards, wire transfers, or cryptocurrency. The sooner you act, the better your chance of limiting the damage. Contact your bank or card issuer to dispute the charge and protect your accounts.

Where to report a loan scam

If you lost money to an advance-fee loan scam, or you have information about the company or the caller, report it at ReportFraud.ftc.gov. Reporting helps law enforcement stop the scammers and warn others. If a lender is operating without a license in your state, you can also file a complaint with your state's financial regulator.

Do your homework before you borrow

A little checking goes a long way. Compare offers carefully, read the costs, and use the APR to line up loans on equal footing; our APR guide shows how. If a short-term loan is what you are considering, payday alternative loans offer a lower-cost path through credit unions.

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Frequently asked questions about loan scams: warning signs and how to avoid them