Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jun 11, 2012

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Thanks to online tools, a robust lending industry, and an increase in borrower education, applying for a personal loan has become very easy to do. Unfortunately, however, scam artists and unscrupulous lenders still remain a threat to borrowers. Awareness of the following warning signs when looking for personal loans can help borrowers avoid scam artists and bad loans.

  • A guaranteed personal loan may be a sign of a scam. By claiming to approve anyone and everyone, a bad lender aims to attract large numbers of customers. Even though certain lenders do approve loans to borrowers with bad credit, legitimate lenders will always check credit scores prior to originating a loan. Since interest rates are almost always tied to credit scores, borrowers should be wary of any approval that didn’t involve a credit check.
  • Unscrupulous lenders may ask a borrower to falsify information on their application. Falsifying information may constitute loan fraud which can result in serious criminal charges.
  • Beware of 900- numbers for customer service. In contrast to 800- numbers, 900- numbers are billed to the caller. A legitimate lending company will use an 800- number with an independent landline.
  • Loans offered through unsolicited phone calls are red flags. Federal law prohibits loans from being offered through calls. Prospective borrowers who receive calls from agents claiming to offer bad credit personal loans should hang up immediately and report the phone call to authorities. This is especially true if the agent asks for personal information over the phone.
  • Loan companies that do not have a physical address are suspicious. A business is required to have a physical address where operations are conducted in order to obtain a business license. Personal loans that are offered from lenders who exist solely online and do not have a physical location are highly suspicious. In order to completely verify whether a company is legitimate, borrowers may consider visiting a lender’s physical location.
  • Loan offers received via spam emails are not to be trusted. These personal loans may carry usurious interest rates or may be fishing for personal information for identity thieves.
  • Non-negotiable loans and usurious fees are a sign of a bad personal loan. Loans should be open to negotiation due to the varied amount of time that most borrowers need to repay the loan.
  • Lenders who utilize high pressure sales tactics should be avoided. Claiming that a loan offer will expire within a few hours, or that the prospective borrower will never find a loan at another establishment are just a few tactics that unscrupulous lenders may utilize.
  • Lenders who pressure prospective borrowers into borrowing more money than they need. Not only is this a sign that the sales person is working off commission, but the loan would also be more profitable for the lender since the interest would be larger in proportion to the larger loan.
  • Agreeing to a contract containing a monthly payment that the lender knows the borrower cannot meet. A borrower may be forced to obtain a second loan in order to pay off his or her first loan once the monthly payments cannot be met. Penalty fees can also be charged by the lender in this situation.
  • Any lender that does not provide required loan disclosures. Loan disclosures such as annual percentage rate (APR) or monthly payments are required by law to be given to borrowers.
  • Borrowers should never sign blank forms or fail to receive copies of all important forms. Blank forms can be edited with any terms and conditions that the borrower has not yet reviewed. Not having a copy of all important forms leaves a borrower unable to reference their agreement or contract should they have a question or concern.
  • If a personal loan sounds too good to be true, then it most likely is.

By keeping these warning signs in mind, borrowers can minimize their risk when searching for personal loans.