As many as 12 million Americans are thought to take out a payday loan each year. Access to quick cash sums can be a lifeline in various situations including unforeseen medical expenses, car repairs, or rent or mortgage payments. Payday loans can also be particularly helpful for people with bad credit histories or those without other means of borrowing money.
However, loan scams are also on the rise as cybercriminals seek to take advantage of unsuspecting borrowers, so it is important to be aware of the potential risks of borrowing money this way. This article will outline some common payday loan scams to help you steer clear of fraudsters.
Phantom Debt Scam
Here, scammers will contact borrowers, claiming that they have an outstanding debt that needs to be repaid immediately. While these claims are false and the demands being made are on non-existent debts, the so-called lender may apply intimidating or threatening means to coerce their victim into clearing the phantom debt. For instance, they may threaten to take legal action against the borrower, garnish their wages, or arrest them if they refuse to pay.
These tactics can be highly distressing and can easily pressure people into parting with large sums of cash. It is important to be aware of these types of scams and to report them to the relevant authorities.
Advance Fee Loan Scam
Here, the borrower is asked to pay an upfront, or advance fee to the lender, in order to secure the loan. This may be under the guise of administrative, insurance or processing purposes whereas, in fact, it is simply a method for the ‘lender’ to take money from the borrower without giving them a loan. People with poor credit histories or those who lack the means to access bank loans are common targets for advance fee loan scammers.
Verified payday lenders such as My Canada Payday typically have to adhere to licensing requirements and many states require payday lenders to be licensed and authorized to operate within that state. Before taking out a loan, always check the lender’s licensing information to ensure you are dealing with a legal entity.
Overpayment Scam
An overpayment scam is a type of refund scam where a lender falsely claims to have issued the borrower a check in excess of the originally agreed-upon loan amount. They then request the borrower to return the excess amount to their account. However, since the check is fake, the borrower is left out of pocket. To avoid such scams, always make sure the funds you receive have cleared before issuing a refund.
Fake Lender Scam
In this type of scam, a fake lender will represent themselves as an authorized one in order to gain access to the borrower’s data. This can include their bank account details, address, and social security number. Having stolen the borrower’s identity, the scammer is then able to steal money from their bank account and take out loans in their name. It is important not to give your personal information away to individuals who claim to be authorized lenders without checking their credentials first.
You can avoid falling prey to fraudsters by being aware of these common types of loan scams.