How To Check if a Loan Company is Legitimate?

In this age of uncertainty and confusion, middle-class Income is on the verge of losing financial credibility. Because of inflation and high-paying interest rates, securing your bank account with a hefty monetary amount can be challenging. Individuals seek credible and reliable financial resources and opt for financial strength and confidence opportunities. Consequently, most banks, insurance plans, and financers have rolled out effective and straightforward ways to extend financial assistance through various programs, policies, and agents that include personal loans. If you need financial aid and looking forward to financing high-priority insignificant purchases, you can opt for personal loans. Taking personal loans is the right approach to secure your future for those with less than standard personal savings. Financial assistance providers are committed to offering support irrespective of religion, background, ethnicity, gender, and age. Whether insured or insured, individuals who cannot meet their basic requirements are provided with financial assistance considering the overall household expenses, Income, and current financial situation.

What are personal loans?

Sometimes known as unsecured debt, personal loans are debt or general obligations that the guarantor does not cover. Person loans are not characterized by collateralization even if the borrower fails to repay the loan. Personal loans are entirely different from secured loans that include mortgage, which uses property real estate as collateral. The amount of money received under personal loans can be utilized for various reasons. These can be personalized and tailored to meet the individual demands as they can be used to pay off a wedding, construct the house, or pay off debt. The money borrowed is supposed to be paid back during the allotted time with interest. However, some of the lenders ensure reimbursement by charging a substantial amount of fee. Personal loans depend on many factors, including the interest rate, fees, and repayment conditions.

Currently, they are provided by credit unions, online dealers, and banks.

You can obtain a lump sum of funding in a personal loan, a form of installment debt. As an example, you may use the loan to cover the following costs:

  • Costs associated with relocation
  • Debt consolidation
  • for medical costs
  • related to weddings
  • or home improvements
  • such as funeral arrangements
  • for holiday/trips
  • unforeseen expenses

While electing personal loans may sound like a sensible option, customers face scams and fraud. As per the Federal Trade Commission, around $3.3 billion has been accumulatively lost or missed due to prevalent scams in 2020. Potential scammers ensure targets in desperate need of personal loans and therefore scam them by ensnaring with fraudulent activities and financial offers. Therefore, if you are opting for a personal loan, make sure to conduct an all-inclusive and thorough scrutiny regarding the integrity of the providers. Failure to do so may result in a significant loss of dollars.

Ensure that the credit union, financial providers, and lenders are legitimate and authorized. Here are some of the simple signs of recognizing untrue loan scams.

Loan Scammers go for those in dire need of a loan and may likely accept an offer too good to be true to receive a loan, and these scammers use various techniques to exploit people. Not a good position to find yourself if you’re being scammed of your hard-earned money.

In this article, there are steps to take to know scammers and detect when you are encountering any illegitimate lender. Here, you will clearly understand how this works to be more guarded.

How to Check if a Loan Company is Legitimate?

To check if a loan company is legitimate, check the following:

  • Ensuring the loan company is registered is a better way to check the legitimacy. Loan companies who are legitimate always have their company registered with the state agencies.
  • Searching for the Better Business Bureau(BBB) would let you know if a loan company is reliable and dependable.
  • Search and look for customers’ reviews on google to better view the loan company you’re about to work with if they are experienced.
  • Legitimate loan companies always make available their contact information on their website check for the company’s email address, physical contact address, and telephone number.

How Do Loan Scams Work?

A loan scam is when a specific fee is demanded up-front and must be paid before the loan. This signals scam, do not fall for it. No loan company requests an up-front payment; once a request is being asked to make a payment, this is fraud and a lie.

How Do I Know if I’m Being Scammed For a Loan?

To know if you’re being scammed for a loan:

  • When the loan company does not have a physical contact address on their website.
  • The loan wants you to act almost immediately, giving you a request to register for a loan; else, it expires within 24 hours.
  • I am requesting an up-front payment.
  • When the loan company isn’t curious about your credit history.
  • When the loan company asks for your prepaid credit card.
  • When the loan company isn’t registered in your state.

Simple ways to identify personal loan scams

  • Lender showing lack of interest in credit history
    If you are availing services from credible and trustworthy loan lenders, the foremost requirement from an applicant would be providing details of your credit history. Lenders need to examine and analyze your credit score and acquire financial reports from three primary credit bureaus: Equifax, Trans Union, and Experian. Applicants should have an established and brief background in paying bills. Lenders confirm that the applicants can pay pending bills before the due date and in time which strengthens their profile and validates that borrowers have the potential to repay the loan. However, creditworthiness and history do not matter for providers who are not credible. They try to lure applicants with a history of unpaid debt and pending loan payments to load them into their scheme.
    Some lenders provide bad credit loans. Applicants with poor credit will have to offer and validate their eligibility by securing their loan. Basic information such as current employment status, financial standing, present Income, and background education is essential.
  • Unregistered lender
    Before proceeding, make sure that the lender is registered in your state. As per the Federal Trade Commission requirements, the credit unions and lenders should be officially registered. This can be confirmed by going to the lender’s website and checking the list of states where they are legally allowed to perform business. If they are unregistered, it is probably because the lender is a scam. Reputable and credible companies will always ensure that they are up-to-date regarding the legal process. This will draw the line between illegitimate and authorized businesses as lenders.
  • Particular demands by the lender
    Some illegitimate and authorized lenders often ask for prepaid debit cards or gift cards from the applicants requiring it to secure the insurance as collateral or fees. This is an evident sign of a scam business as registered loan providers occasionally charge a fee to proceed with the application, appraisal, or credit report. Still, they are always deducted from the loan. Therefore, look out for companies who ask for prepaid cards as it is an evident red flag.
  • Unnoticeable means of communication
    It is illegal if the lender offers personal loans through phone calls, mail and may even knock on your door. In the United States, authorized companies always reach through traditional modes of communication and mass media. Therefore, door-to-door consultation is not permitted and allowed as per the FTC.
  • Unregistered physical address
    An established company will have a proper official address and credentials to ensure authorization. Certain fraudulent companies provide physically vacant lessons; therefore, it is essential to validate them. Before proceeding, verify their physical address and other background details to avoid being a part of the scam. The scammers are untraceable to avoid legal complications and implications. However, generally, as well, businesses should not be conducted with any company that has no substantiated physical address.
  • Putting pressure on the applicants
    Unverified businesses targets are those who are in absolute need of instant cash. However, fraud companies put constant pressure on the borrowers and ask them to immediately sign the deadline for the person known as the offer expires quickly. Companies that emphasize quick personal loan expiry dates are scams. High-pressure tactics relate to a ploy targeting and forcing applicants to make an uninformed decision.
  • Lack of transparency
    The more information provided about the credit unions, banks, or providers, the more transparent the company is. If important information and background credentials are missing from their website, then it is possible that the lender is not disclosing details about the company. Lack of transparency also includes asking for cash upfront as a fee or collateral. If the company is asking for hidden fees after the application initiation, there is a chance that the lender is illegitimate.

What Do I Do if I Get Scammed by a Loan Company?

If you get scammed by a loan company, reach out to law enforcement immediately. Contact your state attorney general and the FBI. The BBB (Better Business Bureau) and FTC (Federal Trade Commission) can also be of help.

Is Personal Loan Guarantee Legit?

The personal loan guarantee is likely a scam when the loan company guarantees approval no matter your financial factors and creditworthiness. Guarantee approvals are standard among secret loan scams, even if you have financial lapses.

While electing personal loans may sound like a sensible option, customers face scams and fraud. As per the Federal Trade Commission, around $3.3 billion has been accumulatively lost or missed due to prevalent scams in 2020. Potential scammers ensure targets in desperate need of personal loans and therefore scam them by ensnaring with fraudulent activities and financial offers. Therefore, if you are opting for a personal loan, make sure to conduct an all-inclusive and thorough scrutiny regarding the integrity of the providers. Failure to do so may result in a significant loss of dollars.

What Happens to Unpaid Online Loans?

Unpaid online loans don’t have a good impact on future borrowing. Not keeping up-to-date with paying an online loan would create a default on that loan and result in penalties. These penalties are high-cost fees and an increase in interest rate. Therefore, defaults in a loan would lead to a loan repayment with a penalty fee attached and credit score likely to drop.

Do Loan Companies Ask For Money Up-Front?

Legitimate loan companies do not request money up-front. If a loan company is requesting an up-front payment, this indicates a possible scam and should be walked away from.

Can I Go to Jail For Not Paying Personal Loan?

Not paying a personal loan doesn’t get you jailed or arrested. To be behind on payments or owing personal loans can’t have any loan company get you jailed or place you in any community service.

What Happens if a Loan is not Paid?

If a loan is not paid, this can get your credit score dropped for many reasons. A Credit Score can drop by 110 points you may encounter difficulty getting a better Interest rate in the future.

How Do You Avoid Loan Scams?

To avoid loan scams, there are ways to achieve this:

  • Do not make payments up-front for a loan.
  • Have a thorough scrutinization and research about the Loan Company.
  • Watch how the Loan Company speaks and reaches out to you about loans.
  • If a Loan Company does not have a physical contact address on their website and is not registered in your state.

Do Loan Companies Ask For Your Card Number?

No, Loan Companies do not ask for details about your card number. It is not safe to give out your card information to anyone. Any Loan Company asking for your number is a possible scammer, do not give it out.

Do Loan Places Ask For Your Online Banking Info?

Yes, most loan companies only ask for your online banking information when your loan funds need to be transferred into your account and for a debit of your payments in due time.

Do Loan Companies Check Your Bank Account?

Yes, Loan Companies frequently check your bank accounts before giving out loans to ensure you can afford the closing costs, mortgage payments, and down payment. You will likely get approved if you have magnificent bank statements void of illicit activities.

Do Loans Ask For Bank Password?

No legitimate Loan Company requests for your Bank password. Avoid any Loan Company asking for information regarding your bank passwords; this is a scam.

How Do Personal Loan Companies Verify Income?

Personal loan companies verify income through your monthly bank statements, most recent tax returns, your employers issuing letters to the loan company.

Is it Normal to Pay a Fee to Get a Loan?

You don’t pay a fee to get a loan; this isn’t normal and legit. Many legit loan companies do not charge any fee to get a loan. This is not the norm.

How Much can a Lender Charge for a Credit Report?

Charges for a credit report costs around $1o to $100. Usually, a lender requests credit reports during a loan application process to ensure your financial purse is still the same and there isn’t any change.

Are Loan Processing Fees Refundable?

Loan processing fees are non-refundable. Once the loan application processing fee is paid, this can’t be refunded.

Can You Get in Trouble For Lying on a Loan Application?

Lying on a loan application is considered fraud and a crime. The borrower could face penalties if found guilty, and the loan company may reject the application. This can put a person in jeopardy if you need to borrow money from a loan company in the future. A person could face legal consequences and may end up 20 years in prison or a million-dollar fine.

What is Aggressive Lending?

Aggressive lending is a lending scheme that makes bad loan conditions to borrowers creating the high cost of fees, higher interest rates, and conditions likely to rip off the borrower of equity.

Is Predatory Lending Legal?

Predatory lending isn’t legal; this act is illegal by federal laws. Any predatory lending involving higher interest rates high cost of fees is a crime and punishable.

Are Payday Loans Predatory?

Payday loans could be considered predatory, as this involves extreme high-interest rate returns and have other hidden charges that borrowers may incur.

What Interest Rate is Predatory Lending?

An interest rate of 5% and over is predatory lending.

What are Common Types of Loan Scams?

A common type of loan scams are:

  • Charity loan scams.
  • Up-front fee loan scam.
  • Debt settlement loan scam.
  • Spammers loan scam.


How to search for a legitimate company

For those genuinely in need of a personal loan, search for the lender’s contact information, including phone number, email address, and physical address. Also, check if it is registered in your state. In addition, it would be better if there were testimonials and reviews written on their website to look at the company’s work. Reviews available on Google and Yelp provide a more intimate insight into the lender and the background. Applicants could also search for the legitimate company at the Better Business Bureau and validate its credibility.

Daniel Smith

Daniel Smith

Daniel Smith is an experienced economist and financial analyst from Utah. He has been in finance for nearly two decades, having worked as a senior analyst for Wells Fargo Bank for 19 years. After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management. At, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification. Read more on Daniel Smith's biography page. Contact Daniel:

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