How To Check if a Loan Company Is Legitimate and Spot Scams

By Ana Gonzalez-Ribeiro, MBA, AFC®
Published on: 02/22/2022

If you find yourself in a difficult situation and need a loan quickly, it’s tempting to jump at the first opportunity that comes along. But it’s important to do your research to avoid predatory lenders and scams.

A predatory lender will loan you money, but impose loan terms that are burdensome and charge exorbitant interest rates. Loan scammers, on the other hand, promise you money and then don’t come through, commonly charging you upfront fees to access loans they never provide.

Here’s a guide to help you recognize them.

How to check if a loan company is legitimate

Fortunately, there are a number of resources you can use to help determine whether a company is legitimate. Some are designed specifically to help you do so, others are public records that show the businesses red flags.

How To Check if a Loan Company Is Legitimate & Spot Scams Asset - 01

Perform a search on the BBB database

You can perform a search through the Better Business Bureau website to check if the loan company is real.

If you see “Not BBB accredited,” it could be a sign that the company is worth investigating further. Not every business with that label is illegitimate, and accreditation isn’t the only tool the BBB offers, either. It also offers a letter rating (along the lines of a grade on a school report card) and provides access to customer reviews and complaints.

It can be helpful to read these because they can offer insights into a company's strengths and shortcomings. Keep in mind that these are perspectives offered by customers, not official endorsements or censures. But if they raise red flags, it is a good idea to proceed with caution.

Check the online reviews or for any complaints

The Better Business Bureau isn’t the only source of reviews you can access; in fact, there are many out there. Perhaps the best known is Yelp!, but Google and Facebook provide reviews of businesses, as well. Plus, there are specific sites like Consumer Affairs that offer both their own reviews and customer reviews that you can access.

Contact your state attorney general

If everything seems solid, you can contact your state attorney general’s office to see if a business is registered with the state. Loan companies are required by law to register before they can do business, so this is a great to see if they are legitimate. You can also check with your state’s bank regulator.[1]

Their physical address or contact information should match

Check the business’ website and pay attention to the contact information it has provided, such as the physical address, phone number, PO Box, and state. See whether this information matches on all platforms. A company’s name may sound impressive, but that’s no guarantee it’s not a loan scammer operating from their home computer.

Cross-check any address with Google maps or review sites such as the Better Business Bureau to verify if the information is accurate. Some businesses may have more than one office, and so may be listed at more than one physical location.

Be wary of businesses that list only a PO Box and no physical address. Many illegitimate and fly-by-night loan providers set up PO Boxes as their only addresses to avoid being contacted by victims of their scams or served with legal papers. If a company has a phone number with an area code that isn’t a toll-free number, that can help you pinpoint its physical location — sometimes. (More on that below.)

How to identify a loan scam

Scammers often promise things they can’t deliver and will try to stay one step ahead of any complaints by simply changing the name of their company, disconnecting their phone, and setting up a new address, usually with a PO Box.

Scammers will also frequently use high-pressure sales tactics to bully customers into providing personal information online or signing agreements without reading the fine print, thereby opening the door to fraud. Watch out for the following signs.

How To Check if a Loan Company Is Legitimate & Spot Scams Asset - 02

The lender’s website is not secure

A legitimate lender’s website will have a padlock sign and a web address that begins with HTTPS, not HTTP.

There are no credit checks

Scammers often guarantee you money with no credit check — and charge you a fee instead. They don’t want to see your credit score or credit report, and they aren’t concerned about your credit card debt or bad credit. They just want your money.

The truth is, however, you can’t buy good credit. It’s something you build over time. It’s a good idea to think twice before doing business with a company that charges you a fee in lieu of a credit check.

Legitimate personal loan companies will do a credit check as part of the loan application to check your creditworthiness before they approve any loan amount.

The lender is not registered in your state

The Federal Trade Commission requires lenders to have licenses in each state where they offer loans. If they don’t list a license, do not do business with them.

There are urgent offers

This is a variation on the sales tactic of offering merchandise for a “limited time only” and urging consumers to “act now.” Often these “urgent offers” come via phone calls from scammers who have purchased lists of names and numbers of people who have applied for payday loans.[2] They’re looking to identify people who are in a hurry to get cash.

Legitimate lenders aren’t going to create “limited time” sales offers and then hike the price back up tomorrow. Instead, they will consistently base the terms of their agreement on your credit score and other factors that they may use to determine your ability to repay.

There is no physical address

Reputable companies should have a physical address and contact information on their website. You can Google their site to investigate further and check on the BBB website, too. If it’s not listed there, it might be a red flag.

There are bad customer reviews

Check what other customers are saying about the company. Are the same complaints surfacing repeatedly, and if so, do they indicate a potential scam? Things to watch out for might include complaints about fees that were paid for services never rendered and an inability to contact the supposed lender with questions or concerns once the deal was signed.

There are upfront payments

Advance-fee loans are a common type of scam. They say they don’t need access to your credit history and can approve you without a credit check. All you have to do is give them upfront fees, often described as “insurance,” a “processing fee,” or an “application fee.”[2] These scammers don’t have any money to lend you.

5 types of loan scams

How To Check if a Loan Company Is Legitimate & Spot Scams Asset - 03

Loan scams can come in several forms. Here are five of the most common types.

Advance fee loan scam

Scammers using this tactic may say you’ve already been approved for a loan, then ask for a fee. It’s illegal for telemarketers to promise a loan or any other kind of credit, then ask for some sort of payment before they provide it.[2]

The payments they’re asking for may take several different forms. They may insist that you pay via a gift card, prepaid debit card, or a wire transfer. These are all signs that you should avoid doing business with the so-called lender behind the “offer.”

Phishing scam

Phishing is an email tactic used to gain access to sensitive information such as your bank account number, Social Security number, username, password, etc.[3]

One hallmark of phishing scams is they’re designed to look like they come from a familiar business or website. They may ask you to confirm personal information or reset your password because they’ve “noticed suspicious activity” on your account or site.

You can avoid phishing scams by looking for red flags such as generic greetings like “Hi, Dear,” misspelled company names, and suspicious email addresses and links.

Student loan forgiveness

You may receive a phone call, email, or letter from a scammer offering to help forgive your student loans. If you receive a call or email from someone promising to help get your student loan forgiven, be wary. Scammers may pose as federal employees promising that you’re eligible to receive benefits from a recently passed law regarding student loan relief.

You don’t have to pay for help with federal student loans. You can contact your loan servicer and the U.S. Department of Education for help with lowering your monthly payment, changing your repayment plan, consolidating federal student loans, seeing if you qualify for loan forgiveness, and other possible courses of action.[4]

If a supposed lender or debt-relief company calls and asks for your Social Security number and bank account information, don’t give it to them.

The FTC has compiled a list of companies and people banned from debt relief you can consult to cross-check offers you may receive.[5]

Debt consolidation

Some scammers may offer you debt consolidation services and require you to pay now when nothing has been done. That’s illegal. Legitimate debt relief firms can only charge for their services once they deliver results.[6]

Identity theft

A scammer may use someone’s identity to open several lines of credit and take out loans or ruin their credit. Phishing is one common way of doing this, but scammers can gain access to your personal information in other ways, too. They might take advantage of an insecure password to access your account or gain access to your computer if it’s not firewall-protected.[7]

What do I do if I get scammed by a loan company?

You have several options available to you through law enforcement, other official agencies, and private resources.

File a police report

You can call or visit your local police department or contact your state’s attorney general.

File a report with the FTC

Contact the Federal Trade Commission, Consumer Financial Protection Bureau, or BBB. The FTC takes reports of scams at ReportFraud.ftc.gov. Reporting information to the FTC helps the agency build cases against scammers, identify trends, and educate consumers.[8]

Contact your financial institution

Check your credit report for any credit changes or scams or see if there were any fraud alerts among your credit bureaus and institutions. Under federal law, you’re entitled to a free copy of your credit report once a year. You can find one at annualcreditreport.com.

If you see any warning signs on your credit report, you can file a dispute with the major credit bureaus (Experian, Equifax or TransUnion). If you set up a wire transfer to a scammer through your bank, contact the financial institution and see if they can reverse it. Or, if you set it up through a money transfer app like PayPal or Google Pay, contact that company and ask them to reverse the payment; or contact the credit card company you have linked to the app.[8]

If you used a gift card, get in touch with the company that issued the card and inform them it was used in a scam and ask them to refund your money. Keep the card itself, along with the receipt, as proof of the transaction.

Contact the Internet Crime Complaint Center

If you have been a victim of internet crime, you can get in touch with the Internet Crime Complaint Center, also known as IC3. It’s a mechanism for reporting information about suspected online criminal acts to the FBI. The information you provide is forwarded to law enforcement so it can be investigated and used to inform the public.

You will need to include your contact information, information about the financial transaction, the alleged scammer (name, address, telephone number, website, IP address), and details of how you were victimized. If you have other relevant information, such as receipts, pamphlets or brochures, copies of emails, chat transcripts, etc., you should include those, too.[9]

Tips to avoid loan scams

Protect your identity and accounts

Cancel any credit or debit cards you believe may have been compromised. Change any passwords you believe may have been stolen. Install a firewall if you believe your computer was compromised. If you use a password you believe may have been compromised on other accounts, change it there, as well.

Create strong passwords by using a combination of numbers, symbols, and both uppercase and lowercase letters. Avoid using personal information that is publicly accessible — such as your name, birthday or email address — which can be easy to guess, and stay away from words that can be found in the dictionary.[10]

Longer passwords (at least six characters; 15 or more is better) are most effective, and random sequences work best. If you’re having trouble, you can use a strong password generator to create one.[11]

Report any type of suspicious activity

If you see suspicious activity on your account, you can report it to the appropriate agency or company. If you see charges on your bank statement you don’t recognize, it’s best to contact your financial institution immediately to see if the damage can be reversed and ensure no more fraudulent charges are made.

Report items you do not recognize on your credit report to the credit bureau to dispute fraudulent charges on your credit cards.

If you gave a scammer your Social Security number, report it to IdentityTheft.gov.

Don’t respond to unsolicited contacts

Don’t answer unsolicited phone calls from numbers you don’t recognize. A number of third-party apps, such as RoboKiller, Truecaller, and YouMail, can be downloaded to block calls from telemarketers and scammers.[12]

By the same token, don’t open any emails you don’t recognize. Take special note of emails claiming to be from legitimate companies that you wouldn’t expect to contact you or that seem out of character. Look for red flags in subject lines. Never open attachments from strangers or emails that you're not sure of.

Don’t give out personal information

Credit card numbers, passwords, your Social Security number, and other identifying information such as your hometown and mother’s maiden name should be kept private. Social media games and quizzes that ask for this kind of information can make you vulnerable to scammers.

Even legitimate companies don’t need access to everything on their sign-up sheets. Mandatory information is marked with a star. You don’t have to fill out anything else. You may have to provide your birth date, for example, to prove you’re an adult and legally able to sign a contract.

You shouldn’t provide your SSN unless you’re dealing with a known government agency such as the DMV, Medicare, or the IRS; an established financial company; your employer; or select trustworthy institutions.

Do your homework

There are several ways you can check to see whether a loan company is legitimate. Scrutinizing loan offers can involve things like checking for a physical address and researching BBB accreditation and consumer reviews and complaints.

If you’re not sure, it’s best to take precautions. Protecting your personal finances by installing firewalls, creating strong passwords, and avoiding phishing emails can help.

If you are pursuing a loan, avoid paying money upfront for things like an “origination fee” or “processing fee.”

These steps and the others discussed above can help you secure your finances and keep you safe from bogus loan providers and other scammers.

Sources

  1. Consumer Financial Protection Bureau. “How do I find my state’s bank regulator?” https://www.consumerfinance.gov/ask-cfpb/how-do-i-find-my-states-bank-regulator-en-1637. Accessed October 12, 2021.
  2. Federal Trade Commission. “What To Know About Advance-Fee Loans,” https://www.consumer.ftc.gov/articles/what-know-about-advance-fee-loans. Accessed October 12, 2021.
  3. Federal Trade Commission. “How To Recognize and Avoid Phishing Scams,” https://www.consumer.ftc.gov/articles/how-recognize-and-avoid-phishing-scams. Accessed October 12, 2021.
  4. Federal Student Aid. “Avoiding Student Aid Scams,” https://studentaid.gov/resources/scams. Accessed October 12, 2021.
  5. Federal Trade Commission. “Companies and People Banned From Debt Relief,” https://www.ftc.gov/enforcement/cases-proceedings/banned-mortgage-relief-debt-relief-companies-people. Accessed October 12, 2021.
  6. AARP. “Debt Relief Scams,” https://www.aarp.org/money/scams-fraud/info-2019/debt-relief.html. Accessed October 12, 2021.
  7. USA.gov. “Identity Theft,” https://www.usa.gov/identity-theft. Accessed October 12, 2021.
  8. Federal Trade Commission. “What To Do if You Were Scammed,” https://www.consumer.ftc.gov/articles/what-do-if-you-were-scammed. Accessed October 12, 2021.
  9. Internet Crime Complaint Center IC3. “Frequently Asked Questions,” https://www.ic3.gov/Home/FAQ. Accessed October 12, 2021.
  10. GCF Global. “Creating strong passwords,” https://edu.gcfglobal.org/en/internetsafety/creating-strong-passwords/1. Accessed October 12, 2021.
  11. PrivacyCanada. “Strong Password Generator: stay safe online,” https://privacycanada.net/strong-password-generator. Accessed October 12, 2021.
  12. PC. “How to Block Robocalls and Spam Calls,” https://www.pcmag.com/how-to/how-to-block-robocalls-and-spam-calls. Accessed October 12, 2021.

About the author

Jeff Smith is the VP of Marketing at Self Financial. See his profile on LinkedIn.

About the reviewer

Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.

self logo
Written on February 22, 2022
Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

Take control of your credit today.

Please enter a valid email.