Borrower Beware: Advanced-Fee Loan Scams

For millions of cash-strapped and desperate Americans, the phrase “You’ve been pre-approved for a personal loan” comes as a welcome change.

But there’s a catch. You haven’t been approved for anything and, in fact, a fraudster trying to run a scam called 'Advance-Fee Lending' has targeted you.

With this scam, a high-risk, low credit-scoring consumer is approached with an offer for an unsecured personal loan with terms that are fairly competitive. But this loan offer comes with a catch. The applicant is asked to pre-pay an amount to help cover the lender’s “loan insurance.” This insurance is positioned as the reason the lender can offer such a high-risk borrower an approval with competitive interest rates and terms.

This fee generally ranges from a few hundred to as much as thousands of dollars. The consumer is asked to wire transfer the funds and, in many of the cases we’ve seen at, the final destination is in Canada. After the money is wired the loan never appears and the “lender” cuts off all communications. Attempts to recover your money are fruitless.

In an effort to seem legitimate, many of the scammers provide what appears to be loan paperwork to the applicant. The verbiage, in our experience, is lengthy and seems to have been cobbled together from the paperwork issued by legitimate lenders. It almost always reads like gibberish. The scam artist is betting that you will do what many applicants do, which is to ignore the paperwork they sign.

How Do You Avoid Advanced-Fee Loan Scams?
Advanced-Fee fraudsters hunt their victims using a variety of legitimate advertising methods including, but not limited to, legitimate looking websites, newspaper ads, radio, email marketing and telemarketing. Their offers are fairly easy to identify because they are atypical. For example, someone who keeps getting declined for personal loans because of credit issues all of a sudden receives an offer for a $5,000 unsecured loan at an interest rate of 14.9%. This should set off alarms that you may be the target of a scam.

The web-savvy individual is less likely to end up as a victim. Searching for the WHOIS registration of the lender’s domain name is a great way to verify the lender’s location and just how long they’ve owned the domain. A lender who has a 6-month-old domain name registered to a Canadian address should also set off alarms. You can also do a Google search and research the lender’s legitimacy. If they don’t have a website, that too is a problem.

The bottom line is this: if the offer is too good to be true then it probably is.
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John Ulzheimer is a nationally recognized credit expert, president of Consumer Education for and contributor to On The Money. Learn more about him at