We all know that scams exist pyramid, Ponzi, it’s likely we’ve all heard of these. But, did you know that Canadian borrowers are at risk of falling victim to online loan scams simply by looking for alternative options when in the market for new financing?
An alternative lender can be a great choice for Canadian consumers who have less than great credit or who have been rejected by other more traditional lenders. But the unfortunate truth is scammers posing as legitimate lenders often prey on these types of borrowers, trying to scam them out of their hard-earned money. Therefore, it’s more important than ever for Canadian consumers to know how to identify a loan scam.
Prepayment and Loan Insurance Scams
One of the most common types of online loan scam is the prepayment or “loan insurance” scam. This is where a fake lender asks for upfront payment from the applicant in order to secure a loan. A legitimate lender will never ask for payment in advance of a borrower receiving their money. If a lender ever asks you for an upfront payment, no matter what reasons they give, it is a scam. Cut off contact with them and alert the appropriate authorities.
While this is not the only loan scam out there, it is, unfortunately, one of the hardest to deal with as these fake lenders simply disappear after a consumer has been scammed with no recourse for the victim. Furthermore, we’ve seen a rise in the number of Canadian consumers coming face to face with lenders requesting upfront payment and feel that there is a lack of accessible information available to help protect Canadians from this type of scam.
How to Spot a Loan Scam
Your first line of defense against a loan scam is knowledge, if you know what to look for, you’ll be less likely to fall victim to one.
Guaranteed Approval
No matter what type of lender you apply with, whether it’s a traditional lending institution or an alternative online lender, they cannot guarantee your approval. Most lenders have their own set of requirements when it comes to approving borrowers, but one thing they all have in common is verifying an applicant’s creditworthiness. This is why no legitimate lender will guarantee your approval.
Pressure to Commit Immediately
If the lender you’ve applied with seems a little too eager to get you to accept an offer, more often than not it’s a sign of a loan scam. It’s in the best interest of a fraudulent lender to get an applicant to accept as soon as possible before they realize anything is off.
No Real-World Presence
Does the lender have an address, a phone number, and reviews and ratings on independent sites? If not, this could be a sign that you’re dealing with a scammer. Even lenders that conduct all their business online will have an address and a phone number. And all lenders that have a history of responsible lending will have reviews.
Requesting Access to Your Bank Account
Often, fraudulent lenders will ask for applicant’s online banking via their debit card number and password. This is usually done under the guise of “bank account verification” or something similar. No real lender needs access to your bank login information for any reason. Many legitimate lenders do use legitimate bank verification systems, but they will never ask for your username and password by email or over the phone and you should never provide it. So, whether it’s to verify your account, to deposit money, or take payment, never provide anyone with your bank account credentials.
Unsolicited Loan Offers
If you receive a loan offer in the form of a phone call, email, or even text message, out of the blue, without having applied, it’s likely that you’re being contacted by a scammer. Fake lenders will often send out loan offers, usually for a large amount, to hundreds if not thousands of consumers, hoping to scam as many as possible. Legitimate lenders do not send loan offers to consumers they have never had any contact with before because they must adhere to Canadian Anti-Spam Laws. It’s important to note that a loan offer, that usually includes “guaranteed approval”, is different than a company advertising their loan services.
This article was written by Caitlin Wood. She is a personal finance blogger and works as the Chief Content Officer at Loans Canada. For more information on how Loans Canada is dealing with loan scams, click here.
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available now on Amazon and at Chapters, Indigo and major bookstores, and as an Audiobook on Amazon, Audible and iTunes.