How to Identify and Avoid Personal Loan Scams and Fraud

Jan 20, 2024
 |  1 min read
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In today's times, financial transactions are mainly conducted online. Therefore, the risk of falling victim to personal loan scams and fraud has become more prevalent. Unfortunately, personal loans, intended to provide financial assistance, have become a breeding ground for unscrupulous individuals seeking to exploit unsuspecting borrowers.

Let us first understand what are loan scams and delve into the various tactics employed by scammers. We will also understand how to identify and protect ourselves from falling prey to personal loan scams.

What are Loan Scams?

Loan scams refer to fraudulent schemes or deceptive practices where individuals or entities exploit borrowers by promising loans but have no intention of providing legitimate financial assistance. These scams often involve tricking individuals into paying upfront fees, providing personal information, or paying for never-delivered services.

Loan scams can take various forms, and scammers continually adapt their tactics to exploit vulnerabilities in the lending landscape.

Types of Scams

  • Advance Fee Fraud: In advance fee fraud, scammers request upfront payments from borrowers under the guise of processing fees, insurance, or other charges. Victims are led to believe that paying these fees will secure their loan, but once the payment is made, the scammer disappears, leaving the borrower without the promised funds.
  • Phishing Scams: Phishing involves creating fake websites or emails that mimic legitimate financial institutions. These institutions trick individuals into providing sensitive information such as usernames, passwords, or financial details. Scammers use this information for theft or other unauthorized financial activities.
  • Impersonation of Legitimate Lenders: Scammers create fake websites or pose as established lenders to deceive borrowers. Victims may unknowingly apply for loans on these fraudulent platforms, losing personal information or financial resources.
  • Fake Loan Apps: Scammers create fake loan apps that imitate legitimate ones. These apps can steal personal information or impose excessively high-interest rates and hidden fees on the victim. Users can get trapped by unsuspecting borrowers in a cycle of debt.
  • Guaranteed Approval Scams: Scammers promise guaranteed loan approval, regardless of the applicant's credit history. Promises of guaranteed approval should be treated as a red flag.
  • Loan Modification Scams: Fraudsters offer to modify existing loans, promising reduced interest rates or better terms. However, victims pay fees for services not provided, and the pledged modifications never materialize.
  • Identity Theft: Scammers use stolen personal information to apply for loans on behalf of victims without their knowledge. This can damage the victim's credit history and can lead to financial losses.
  • Bogus Debt Consolidation: Scammers offering debt consolidation services may claim to negotiate with lenders to reduce outstanding debts. However, victims end up paying fees with no actual reduction in debt, exacerbating their financial woes.

Types of Loans to Avoid

Here are some types of loans to avoid altogether or approach cautiously to minimise the risk of getting trapped in scams.

Payday Loans:

Payday loans often come with short repayment periods. These loans are notorious for their high fees and predatory lending practices and can lead borrowers into a cycle of debt.

No-Credit-Check Loans:

Loans that claim to require no credit checks often come with extremely high-interest rates and fees. Legitimate lenders typically assess creditworthiness before approving loans.

Unsecured Personal Loans from Unknown Lenders:

Unsecured personal loans from unfamiliar or unverified lenders pose a risk of falling victim to scams. Research and verify the legitimacy of lenders before providing personal information.

Loans with Upfront Fees:

Authorized lenders deduct or include fees from the loan amount in the repayment plan. But, if a lender requests upfront fees before processing the loan, it may be a red flag for potential scams.

Car Title Loans:

Car title loans are short-term, high-interest loans where borrowers use their vehicle's title as collateral. These loans often have steep fees and interest rates, posing financial risks. If the borrower cannot repay, the lender can repossess the vehicle.

Cryptocurrency Loans:

With the rise of cryptocurrency, some scammers offer loans in cryptocurrency. Due to the relatively unregulated nature of this space, borrowers may be exposed to fraud and a high risk of losing their investments.

Loans with Excessive Interest Rates:

Any loan with interest rates significantly higher than the prevailing market rates should raise concerns. Predatory lenders often target vulnerable individuals with excessively high-interest loans, leading to financial hardship.

Online or Pop-Up Loan Offers:

Be cautious of online ads or pop-up offers promising quick and easy loans. Scammers often use these platforms to lure unsuspecting borrowers into fraudulent schemes.

What to Do if You Have Been Scammed Online

Discovering that you have been scammed online can be a distressing experience, but taking swift and decisive actions to mitigate further damage is essential. Here's a step-by-step guide on what to do if you have been scammed online.

  • Stay Calm: Try to stay calm and not panic, as it can hinder your ability to think clearly and take the necessary steps to address the situation.
  • Document Details: Gather and document all relevant information about the scam, including emails, messages, transaction records, and other communication. These details will be valuable when reporting the incident.
  • Contact your Financial Institution: Contact your bank or credit card issuer to report the fraud. Provide them with all the details you have documented. They can guide you through disputing charges and potentially freezing your account to prevent further unauthorized transactions.
  • Change Passwords: If the scam involves compromising your accounts or passwords, change your passwords immediately. This applies to online banking, email, social media, and any other accounts that may have been affected.
  • Report to the Authorities: File a complaint with your local law enforcement agency. Provide them with all the information you have gathered, and they may guide you on the appropriate steps.
  • Report to Online Platforms: If the scam occurred on a specific online platform, report the incident to that platform.
  • File a Complaint with Cybercrime Agencies: You should report your situation to the Cyber Crime Cell of your local police. The Cyber Crime Reporting Portal ( allows you to file online complaints.
  • Check and Monitor Your Credit Report: Monitor your credit report for unauthorized activity. You can request a free credit report from credit bureaus and report any discrepancies immediately.
  • Install Security Software: Ensure that your computer and other devices have updated and reputable antivirus and anti-malware software installed.
  • Educate Yourself: Learn from the experience. Understand the tactics scammers use and stay informed about common online scams to protect yourself in the future.
  • Seek Professional Advice: If the scam involves a significant financial loss or complicated legal matters, consider seeking advice from legal professionals or financial advisors.
  • Warn Others: Share your experience on social media or other platforms to warn others about the scam. Awareness can prevent from falling victim to similar schemes.


Spotting personal loan scams and fraud in India requires awareness, research, and due diligence. By staying informed about common tactics employed by scammers, individuals can fortify themselves against deceptive practices, ensuring that their foray into personal loans is a secure and legitimate endeavour. Remember, an educated borrower is an empowered borrower, capable of navigating the financial landscape with confidence and resilience.

At mPokket, we treasure the trust that our customers put in us. Our safety and security measures are the best in the instant personal loan app business. When you share your details with us, we ensure it always fits into the right hands. mPokket offers world-class protection against any instant loan online. Our system provides loan for emergency and other quick easy loans, so you know your confidential and sensitive information is safe.

Gaurav Jalan

Gaurav Jalan is the Founder and CEO of mPokket, a digital lending platform serving underserved Indian youth. He leverages technology and experience to deliver cost-effective credit to marginalized populations. In his role, he provides strategic direction and oversees execution to fulfill mPokket's mission.