How to avoid personal loan fraud and protect your money

As personal loan scams occurs when someone falsely states on their loan application that they have income, wealth, or other financial information that is not true for the purpose of obtaining a loan. Fraudulent financing can emerge as part of a larger scheme filled with lies. It can be used to obtain mortgage loans or personal loans in considerable amounts.

The most common thing is for fraudsters to fall for small lies, such as increasing their annual income a little, modifying the value of other assets a little to get a larger loan. Committing fraud in financial activities is considered a crime.

It is also known as identity crime, as false information is used to identify the financing applicant. In other words, lying about your name, address, bank account, credit history, among other information. Identity crimes can be committed both online and in person, and as a result, the borrowed loan is returned irregularly.

Banks and online loan providers have robust procedures in place to detect this type of fraud and take action. These procedures include identity checks, checking credit scores whenever you apply for a loan, and verifying third-party information. If any data provides incomplete or incorrect information, it may lead to a fraud alert.

Why scams involving personal loans have grown so much

Personal loan scams are growing in number due to several factors, which generally arise from the growing demand for working capital and credit for individuals.

People generally turn to loans when they need money to make investments, pay off debts, or deal with unexpected circumstances. In this scenario, scammers take advantage of the situation to offer fake loans.

These scammers often gain victims' trust by promising cheaper interest rates or friendlier payment terms than those offered by legitimate financial institutions.

Scammers also suggest to victims that they do not need any documents or approval process for the loan to be released, which often raises suspicion. This can also be attractive to people who face credit constraints that prevent them from borrowing through legitimate means.

Additionally, some scammers use misleading ads and fake identities on social media to lure victims with promises of easy loans. In this situation, victims pay a sum of money upfront and do not receive the loan.

To avoid these scams, it is important that victims always check the creditworthiness of any loan offered and refuse to make advance payments before the loan has been fully processed.

How to avoid personal loan fraud

1. Check the identification documents provided by the applicant and make sure they are all correct.

2. Check the applicant's background and make sure she is telling the truth about her financial situation.

3. Verify that the applicant has a positive credit history by checking that the applicant has outstanding balances and paid debts.

4. Protect yourself by hiring a credit protection company to monitor the applicant's activities and keep loan information up to date.

5. If the loan is to a company, check the company's credibility and history of late payments with suppliers.

6. Set careful limits on the loan amount that will be accepted.

7. Be prepared to review your loan process periodically.

8. Require proof of income and address from the applicant.

9. Limit loans to applicants whose address is in the issuer's country.

10. Put termination clauses in the terms of your loans so you can request payment if something unexpected happens.

Is it possible to recover the value of fraud involving personal loans?

Yes, it is possible to recover the amount from fraud involving personal loans. The first step to recovering your funds from loan fraud is to take the case to the bank or financial service that originated the loan.

The bank/financial company can assess the facts and will possibly refund the funds directly to your customer.

If the bank is unable to help, you should report the fraud to the appropriate credit bureaus or government agencies, such as the Department of Justice. After the report, local and/or state authorities will investigate the case. Depending on the circumstances, you may be entitled to a refund.

Final considerations

To avoid fraud with personal loans, it is important to verify the data provided by the credit applicant, as well as ensuring that all financial information provided is true, accurate and correct.

It is also important to ask the candidate to provide additional documentation that can help with the verification process, such as proof of address, income or employment.

Banks and financial institutions should also use background check tools and scam checks to detect fraud before it is completed.

Besides that, it is important to provide the loan applicant with information about basic lending guidelines, as well as other financing opportunities and the risks associated with the loan, to prevent fraud in the future.