Personal Loan Scams and Frauds: What to Keep an Eye On

When you apply to get a loan for personal use, the chance of fraud is a serious aspect of the procedure. The information about your life you disclose during the application process will not just be attractive to lenders. Criminals can also use everything from your address at home and your Social Security number to take cash from you. Learn more about the frauds that personal loans and scams can commit.

The loan fraud category is the second most expensive white-collar crime in the United States (tax evasion is the most costly). As per the (FBI) fraud, it costs more than 40 billion dollars a year.

The number of victims represents millions of victims of frauds that involve money. In the case of frequent victims of fraud, it’s money they cannot afford to lose. The cost of insurance fraud is $400-$700 for the typical American household.

This blog will list the kinds of personal loan scams and frauds that every person should be looking for. By reading this article, you’ll be able to recognize the indicators of fraud on your way towards financial security.

What are Personal Loan Frauds and Scams?

Before we discuss what to be aware of when you apply for personal loans, it is important to understand what we’re talking about. What exactly is fraud?

Fraud is the act of deliberately misleads a person to take money from them. Fraud involves making false claims that result in a person giving an item they wouldn’t have if they had known the truth. The most common false claims involve concealing information or lying. To be effective, frauds and scams depend on the naivety of consumers. Most often, the company or person responsible for the fraud is aware of something the victim does not know.

Let’s examine some of the most popular types of fraud.

Common Personal Scams and Frauds in Loans

In the realm of personal loans, fraud occurs frequently. Criminals can prey on prospective borrowers looking for relief from financial burdens. As they’re in desperate need of urgent help, they can be prone to believe in false claims.

The Signs of a Personal Loan Scam

With a myriad of personal loans accessible to customers, it’s difficult for law enforcement officials to stay on top of the rapid growth of fraudulent loan scams. However, there are apparent signs of typical loan scams that you can easily recognize.

Guaranteed Approval

Personal loan applications are not guarantee-free. Therefore, any business which claims you’ll be accepted “regardless of” the circumstances is a bad idea. The good news is that there are bad credit personal loans available for those with poor credit scores. However, the denial and approval for the bad credit personal loan are still dependent on the same criteria as any other personal loan.

Pay History Hasn’t Been Reviewed.

Your client’s payment history is the most crucial aspect of any reputable lender in determining whether you are approved or denied. Good payment history can outweigh the negative credit score. A lender would like to know that they’ll receive their cash return from you. In the end, the interest they charge on the loan they made to you is profit for them.

So why would a bank prefer a borrower with a poor credit record? To accumulate penalties and fees that can keep the borrower in debt for months or even years. The debtor will have to pay back more than the principle and the interest.

A prepaid credit card is required.

Some scams involving personal loans demand borrowers to use prepaid debit cards to secure loans. They claim it’s for security, collateral, or fees. Some legitimate banks charge fees to cover the costs of the loan application. However, these fees, which are typically referred to as origination fees, are paid out of your loan amount. This means you only have to pay them when your loan application is approved. Good leaders won’t demand the money in advance.

The Hidden or Surprise Advance Fee Affects the loan’s Red Flag.

Because of The Truth in Lending Act, consumers are entitled to be informed about interest rates and finance charges on loans. If a lender does not include an advance fee, it is an indicator that could indicate fraud in the loan. The bad lenders may also attempt to alter the fee structure to make it easier to complete applying for loans. By the Federal Trade Commission (FTC), the borrower must beware of any company that demands upfront payment. In particular, they should avoid using words like “processing,” “insurance,” or “paperwork.”

Lender Doesn’t Have a License in Your State.

The FTC has required lenders to register in the states where they deal with their customers. If you’re planning to apply for a personal loan, visit the lender’s website to confirm that they’re authorized to provide loans to people in the state you reside in. If the lender’s website does not include an address in the physical world, this is a clear indication that you need to stay clear of it. Many fraudsters will use this to avoid legal penalties.

The Lender Needs to Take Action Now

The borrower is often confronted with aggressive tactics. These tactics are intended to convince the borrower to take action quickly without understanding or analyzing a lender’s loan offer. If you’re being pressured to make a fast decision about a loan, you’re probably close to falling victim to fraudsters who offer personal loans. A suitable lender will give you a few days to decide whether to accept a loan. Whatever your financial needs are, do not feel you are pressured to make a fast decision. There is a chance to think about the best choice for yourself always.

Mortgage Loans/Frauds

The term “mortgage fraud” refers to a false representation made by the borrower, seller, lender, or both that results in the approval of the mortgage loan that they would typically not be eligible for.

There are three main types of mortgage fraud: fraud for housing, fraud to earn money, and criminal activity.

Fraud For Housing/Property

Housing fraud usually is when a borrower makes false representations to acquire or maintain a house. The most common actions involve knowingly providing inaccurate information about assets and income. In some instances, people are also working with appraisers to adjust the estimated value of a home.

Fraud For Profit

In this kind of fraud committed by mortgages, different players within the mortgage industry could be involved. Bank appraisers, brokers, appraisers officers, even attorneys are all engaged in stealing cash and equity from lenders and homeowners. Profit-driven fraud can destroy the mortgage industry. For instance, the 2008 mortgage crisis was caused by massive mortgage fraud centered on subprime loans.

Because criminals’ experience can result in significant financial loss and loss of money, fraud for profit is an essential concern for a federal prosecutor.

Fraud To Criminal Enterprise

This kind of mortgage fraud happens when investment in real estate is used to hide the source of the illegal money. This type of crime is called money laundering. Flipping houses – buying property and selling it fast is a famous method criminals use to launder money.

Mortgage fraud is a severe crime that could be prosecuted and even jail time for those who commit it; in the United States and other states, those found guilty face 30 years in prison and be fined as high as $1 million.

Different types of mortgage fraud

Alongside the cases mentioned above below, here are other examples of loan fraud or frauds in the mortgage business:

Straw Buyers

A Straw Purchase is a practice of giving your name to someone who is not you to purchase a house or vehicle. It is used to conceal the actual buyer and create a fake persona to facilitate the transaction. Sometimes, this is done because the actual buyer is unable to obtain financing to purchase the item.

Short Sale Fraud

The perpetrator of frauds involving short sales conceals the existence of a contingent transaction and falsifies essential details, such as the actual value of the property, to make a decision difficult for the purchaser.

Reverse Mortgage Fraud

The reverse mortgage refers to a loan to a property that permits individuals to turn their house equity into money. The majority of scams that involve reverse mortgages take advantage of the vulnerability of reverse mortgage holders, particularly senior citizens. The perpetrator bribes senior citizens to take out a reverse loan and then reinvests the money.

Foreclosure Rescue Scheme

The “foreclosure professional” promises to aid a borrower to avoid losing their home to foreclosure. The borrower must pay the scammer money to help them fight foreclosure; however, they eventually “lose” the fight. The expert didn’t do anything but keep the money.

Reverse Occupancy Fraud

The reverse occupancy scam is a scam in which the borrower invests in a property and declares rent as their source of income to be eligible for a mortgage. In the end, instead of leasing, the borrower resides in the house as their primary residence.

Investment Club Scams

Ponzi schemes, also known as investment clubs, are the selling of property at artificially high prices. With promises of high returns and low risk, These schemes are marketed to inexperienced real estate investors.

Identification Theft: What to be Watching For

The term “identity theft” (or Identity fraud) is when a person’s private information is taken by a third party to commit fraud. The scam often involves the victim’s information being utilized for profit or intentionally damaging their financial standing.

Identity theft is utilized to gain access to anything related to social security numbers to medical insurance. Financial identity theft is the most frequent type, where a person’s information can acquire credit cards, benefits, or other goods.

What is the process behind Identity Theft Work?

Identity thieves scan all areas of our daily lives for helpful information. They can use methods ranging from listening to your telephone calls to finding the bank account numbers inside garbage cans.

The best chances for identity thieves lie in the utilization of technology. They can use methods such as searching abandoned hard drives, infiltrating computer networks, and installing malware on victims’ PCs. Identity criminals also use social media websites to copy accounts of their victims’ acquaintances. By posing as a person who is close to them, they could obtain birth dates and other pieces of important information.

As per the Federal Trade Commission, the number of reported identity theft cases increased twofold between 2019 and 2020. Furthermore, the FTC said that there was a 2,920% rise in identity theft cases in which the information was used to apply for unemployment benefits or government compensation. The increase is primarily due to the increasing federal funds for COVID-19 economic relief.

Synthetic Identity Theft

Over the past several years, a different type of identity theft has increased frequency: synthetic identity theft.

Sometimes referred to as “Frankenstein identity the synthetic theft of identity is one form of fraud where the criminal mixes stole personal details with fake data to create a fake identity. The precise information used in this scam is typically stolen from a different source. However, since the personal information stolen is genuine, it could be combined with fake details and rebranded as legitimate.

Synthetic identity thieves might begin by getting an identity number for social security from one individual. They then create the name and date of birth to match the number. To make an even more convincing “person,” these identities are often granted social media accounts with photographs.

The identities are then utilized to apply for credit cards as well as bank loans. This will result in the credit report and credit score. The affected individual has the same spending capacity as an actual consumer with a fake ID and credit score. That means they have access to credit cards with high limits and loans. When the credit is exhausted, or the loan funds are removed, the account gets inactive and is delinquent. There is no one else to make the repayments to the lenders. This makes the loan scam challenging to identify and difficult to spot when it happens.

A skilled synthetic identity theft thief makes multiple fake identities and increases their credit histories over time. However, this scam can take a long time to master, but it’s a lucrative one. In a report from 2019 released, The Federal Reserve estimated that lenders suffered losses of around 6 billion dollars due to fake identity fraud.

How to Guard Against Identity Theft

Identity thieves improve at their job every day, making the task of removing identity theft difficult. But, you can take a few ways to make it harder to gain access to your data.

Freeze Your Credit

You can limit credit reports with the three credit bureaus (Experian, Equifax, and TransUnion). When you block your credit report, neither the creditor nor the lender will be able to access your information. This means that no new credit or loans will be able to be approved through your name. All major credit bureaus will allow the ability to freeze and defrost your credit for free.

Monitor Your Credit Report

Your credit report is an excellent opportunity to detect the signs of fraud. Each credit bureau provides free access to your report. Check your credit report frequently to verify the details of all accounts you have listed.

Secure the security of your Social Security number

The Social Security number is possibly the most significant identification number you’ve got. Consider it to be the password master to every vital information. It is unnecessary to take your social security number in your pocket, so store it safely in a secure place. Also, make sure you ensure that you secure all documents that have the social security numbers.

Make Your Password Stronger and Play the Play the Authentication Game

Although it’s nice to use the same password across multiple accounts can make the task of cybercriminals extremely simple. Instead, you should use a password manager to make complicated security passwords suitable for an online account. These programs can be integrated with your browser to let you log into as well as out securely.

Also, think about using two-step authentication in any of your applications or online accounts that provide it. It is a feature that requires users to allow access to 2 different points of entry. As an example, suppose you go to the website of your bank to check your account. After you enter your password and username, you’re directed to a webpage that asks you to enter the access number. In addition, you will receive an SMS message which contains an access number required. Once you have entered that code, you can access as well as manage your accounts. This will increase the chances that the person trying to view the report you.

Broadly, be sure that in your online interaction–particularly on social media–you are careful about the details you share about your life. Information about your personal life can aid thieves in identifying passwords and find solutions to security concerns.

Find a Shredder

Documents containing bank account numbers, social security numbers, or other personal information precisely describe what identity thieves are searching for. In many cases, individuals make it easier for them by throwing them away. Instead, consider investing in a shredder, so you’re not putting your data at risk by removing the chance of having any hard copy of your data being stolen by someone else.

Shredding objects is entertaining!

What is the process for prosecuting fraud?

There are anti-fraud laws in place that govern businesses at the federal and state levels. The prosecutor in these cases decides whether the person who committed the fraud will be brought to trial.

To establish a strong argument for fraudulent activity, the prosecutor has to demonstrate the following:

  • The perpetrator made an untrue statement as factual.
  • The perpetrator was aware that the information wasn’t a fact.
  • The incorrect information was provided to deceive the victim to get them confused.
  • The victim’s faith in the false claim
  • The victim suffered the injury because of their faith in the false assertion.

When the court convicts, the criminals could be sent to prison. The degree of their punishment is typically determined by the amount of money taken from the victims.

If the case does not go to court for criminal proceedings in the event of a dispute, the victim and person who committed the offense could negotiate a settlement that grants the victim cash. If no settlement is made, the perpetrator can seek the amount at the civil court.

In conclusion

The threat of loan fraud, regardless effort, will not disappear any time shortly. The key to staying away from scams and frauds is to be on guard. Knowing where your personal information is throughout the day is among the most vital safeguards against fraud. When filling the new loan request, make sure that you know where your personal information is going and what it will be used for.

Be sure to think about the absolute necessity of giving out your details. Does the loan or offer you’re looking to apply for an actual requirement? It’s unnecessary to take a day to look at “exceptional deals” that might provide you with the time needed to make an informed choice.

As we’ve said before, no matter how hard we try to combat fraud does not always work. With every defense, you present criminals are working to come up with new crimes. If you are the victim of fraud, act immediately. Stop access to the public area of your account as soon as possible and then freeze your credit. Contact the local law enforcement agency to determine what actions you can take to investigate the incident. If law enforcement isn’t able to assist, you should contact an attorney to assess the possibility of civil actions.

Personal information must be handled with care. Therefore, it is important to research all the ways you can protect yourself from scams and fraud. This will allow you to stay clear of the risk. It can also help you keep the financial stability and security you’ll need to make the most of any opportunities that may come your way.