7 Ways to Avoid Personal Loan Scams You Must Know

In India, personal loans are the most common way to fund personal needs, like starting a business, education, medical emergencies, and more. However, as these loans have started to become widely available, so has the fraud associated with them.

Table of Content

1. Different Types of Personal Loan Scams
2. 7 Ways to Avoid Personal Loan Scams

Loan frauds often occur when scammers lure borrowers with enticing offers, promising quick approvals and low interest rates to those in urgent need of cash. These scams have become alarmingly common with banks in India having recorded over 9000 banking and loan fraud complaints in the past year, with an underlying total of over Rs 60,000 crore.

This makes avoiding these personal loan scams a significant challenge, however, by understanding how to identify and avoid these scams, you too can steer clear of potential pitfalls.

Different Types of Personal Loan Scams

Here are some common types of personal loan scams in India:

• Phishing: It's a most common type of scam where scammers try to get your personal information through messages, emails, etc by posing as legitimate and reputed lenders.
• Data Breaches: Hackers bypass security to enter and hack the database of any organization to extract confidential and personal information. This information could be used to apply for loans using other people's identities.
• Document misuse: Using your documents such as Aadhar card, Pen card, etc, scammers can do identity theft, using your identity to withdraw a loan and vanish with the money.
• Fake lenders: Many scammers can impersonate legitimate lenders and target people with low credit scores, promising them instant personal loan status approval and low interest rates.

7 Ways to Avoid Personal Loan Scams

To help safeguard your finances and ensure a secure and straightforward loan application process, here are seven ways you can follow to avoid loan scams:

Research the lender

One of the best ways to avoid loan scams is by doing thorough research on the lender. This includes checking whether the bank is accredited by the Reserve Bank of India (RBI) or any other regulatory bodies, confirming the lender's address and contact details, looking for testimonials or reviews from previous borrowers, and visiting the lender's website to check whether the website is secure or not (the URL should be HTTPS, not just HTTP).

Do not pay any upfront fees

Be cautious of lenders who request upfront fees for personal loans. Genuine lenders generally do not require substantial upfront payments, as they usually deduct expenses, such as processing fees, from the loan amount itself. As a borrower, you should only be responsible for any costs after your personal loan status is approved and disbursed, avoiding any upfront financial commitments until the loan is finalized.

Read the fine print

Before signing any loan agreement with a lender, thoroughly review the terms and conditions. Pay close attention to information about interest rates, repayment schedules, and the associated fees to avoid any hidden charges or unfavourable terms. If you are unsure about any aspect, ask questions and seek clarification before proceeding.

Beware of unrealistic promises

Beware of lenders that promise guaranteed approval of personal loan application status or offer interest rates that are too good to be true. Also, if the lender is not doing a basic credit history check, then it should raise an immediate red flag. Any legitimate lender will check your credit score and eligibility before approving the loan.

Safeguard your personal information

Be extremely cautious when sharing personal and financial information online. Only provide such sensitive details to reputable lenders with secure websites and verified credentials. Scammers can use your personal information to impersonate your identity and carry out fraudulent activities, such as opening unauthorized accounts or taking out loans in your name.

Beware of pressure tactics

Scammers can use different high-pressure tactics to create a sense of urgency and pressure you into taking the loan without checking any terms and conditions. They could make claims like “if you don't apply now, the offer will expire” or tell you that applying for a loan elsewhere could harm your credit score. If a lender is pushing you to make a quick decision or using scare tactics, it's a red flag signalling a potential scam.

Report the scam

If you ever encounter or fall victim to a loan scam, report it immediately to the National Cyber Crime Portal. You can file your report online or call the National Cyber Crime Helpline. Make sure to provide detailed information and any supporting evidence to assist in the investigation. Additionally, consider complaining at the nearest police station. This can increase your chances of recovering your money.

Suggested Read: 12 Tips To Protect Yourself From Fraud While Taking An Online Loan

Loan fraud in India has been increasing day by day, leaving people to suffer from its devastating financial consequences. By following the above-discussed ways and being vigilant, you will be easily able to avoid getting scammed. Always remember that legitimate lenders aim to prioritise your financial stability and will work with you to find the perfect loan that suits your needs and ability to repay.

If you are looking for a personal loan with competitive rates, consider Muthoot Finance. With flexible repayment plans, attractive interest rates, and easy documentation and eligibility, Muthoot Finance is a brand you can trust. To apply for a personal loan, visit our website or your nearest Muthoot Finance branch.