5 Signs Of A Loan Scam And What To Watch Out For

Scams cost Australians over $630 million a year according to the ACCC, with over 353,000 combined reports to Scamwatch, other government agencies and the big four banks last year alone. Banking and credit scams are particularly worrying, as are personal loan frauds and similar loan scams, which make tempting promises before running off with your much-needed money.

This means the average Australia needs to be extra vigilant when searching for personal loans. The government's Moneysmart website has an extensive list of companies not to be trusted, but every year, more and more sneak under the radar. Here are 5 signs of a loan scam and what to watch out for, so you can keep your incoming money safe and secure.

Lender Guarantees Approval

If a lender is guaranteeing an approval, this is a potential loan scam and should raise red flags while you're searching for a personal loan. A lender that promises that you'll be guaranteed approval despite your income or credit score history is likely not only irresponsible but also looking to take advantage of you.

A good lender will use your credit score, income and employment information to determine your personal loan on a case-by-case basis, and as a result they should never guarantee approval.

No Credit Or Payment History Check

If you're borrowing from a lender that doesn't undertake a credit or payment history test, then you could very well be falling into a personal loan fraud. A reputable lender will usually look at your credit score, since they need to know that you have a history of paying bills on time to determine whether you can repay their loan.

On the other hand, a lender out to scam you doesn't care that you won't be repaying your loan in a timely manner – they actually want to find high-risk borrowers, and they want you to fail, since it means you'll be paying their exceedingly high penalty fees.

It should be noted that these sorts of loan scams are different to genuine bad credit loans, which still take into account your payment history but are a little more forgiving to borrowers with a low credit score.

Fees Are Unclear

Vague fees are a sign that a lender has purposely left open loopholes for you to fall into, meaning that you'll likely fall prey to their hidden fees (and those fees will likely be costly). Any lender that asks for upfront payments for processing, paperwork or insurance should be immediately omitted from your potential lenders list.

The Loan Requires Payment Upfront

Similar to the previous point, demanding an upfront payment is not necessary for personal loans – after all, the whole preface of a loan is that you don't have money immediately available. A good lender will understand your financial struggles and set a date at which you will start repaying the loan, while still being clear about fees.

There Is No Physical Address

This is a huge warning sign that personal loan fraud is taking place under this business's name, since scam lenders want to remain as untraceable as possible so they can avoid legal consequences or police action. Even if they do list an address, take a moment to type it into Google maps – there have been cases where listed physical addresses are empty lots.

What To Do If You Think You've Been Scammed

According to Scamwatch, the official government website run by the ACCC, there are numerous ways to seek help if you think you've fallen prey to a loan scam. In order to protect yourself, you should take the following actions:

  • Contact people you know. Warn your friends and family of the scam.
  • Contact your financial institution. If you have shared your bank details with a predatory lender, be sure to contact your bank, as they can possibly stop a transaction or assist you in closing down your account.
  • Report scams to the authorities. You can report via the Scamwatch website, the ATO or the police, depending on the nature of the scam.
  • Contact your local consumer protection agency. While the ACCC is the national agency regarding consumer matters, there are state-level agencies in every state, including Queensland, New South Wales and Victoria.
  • Contact a counselling or support service. This is particularly useful if you have fallen victim to personal loan fraud, as a support service can help you get back on top of your finances if you're having ongoing money problems.

How To Protect Yourself

While not always related to personal loan scams, it's important to know how to protect yourself in a variety of situations. To avoid being the target of a scam, you should:

Use Strong Passwords

Forget "password" and "12345" – these passwords are easily predictable and hackable.

While some internet browsers can generate and store securely generated passwords for you, it's better that you come up with a system you remember. A good tip is to use a phrase or acronym you'll remember, swapping out letters for numbers (for example, the Shakespearian quote "To be or not to be – that is the question" becomes "2BOrNot2B_ThatIsThe?").

Secure Devices

If your computer, laptop or phone has the option to add a passcode, do it. It's an easy way to secure your device, but make sure you don't use the same code across all devices (for example, don't use the same PIN for your phone and your credit card).

Shred Personal Documents

Even handwritten notes (such as taking note of your passwords) can be detrimental. Be sure that all personal documents are put through the shredder before being put in the bin, since potential scam artists have been known to go through them.

Research Lender Information

Websites such as Finder allow you to research lenders across Australia, while also letting you know the lender's fees, loan terms and more.

At Sunshine Loans, we are committed to responsible lending practices. We clearly list our loan costs, fees, and have a dedicated customer support service to help you out if you have any further questions.