How do I know if a loan company is legitimate

how do i know if a loan company is legitimate

Newly released Federal Trade Commission data shows that consumers reported losing nearly $8.8 billion to fraud in 2022.1 However, loan scams are not just for borrowers, they can happen to lenders too. The PPP loans during the pandemic are a good example that is still being investigated. According to the SBA, an estimated 17 percent of all COVID-19 EIDL and PPP funds were disbursed to potentially fraudulent actors.

Although both aspects are fraud and are important, in this article we will be discussing the side that impacts borrowers—so scams for borrowing money, not lending. 

Continue reading this helpful article on all the information you need about identifying loan scams and how to make sure you find a legitimate company! 

What Is a Personal Loan Scam?

A personal loan scam is a financial product that is illegitimate and set up to leave the borrower at a loss. Some scams with personal loans are quite serious, such as personal loan fraud. Loan fraud is when fraudulent businesses claim to be legitimate lenders but legally are not. Fraudulent personal loans may leave borrowers without any loan funds at all and instead charge them fees to take their money. Unfortunately, loan scammers target people with bad credit or past bankruptcies because they know these people have a hard time finding loan approval.  

How To Avoid Personal Loan Scams and Find a Legitimate Business Lenders

Before you officially agree to and sign a loan contract, it is essential to do your own research first. Take a look at multiple lenders before you pick one. Try the helpful tips below during your research to make sure you avoid personal loan scams and find a legitimate lender.

Talk to a Loan Associate

Even if you are looking for online loans, you should still talk to a person who works for the lending company. Ask them questions like a common interest rate, what accommodations they have for people with a less than perfect credit history or a credit report that isn’t ideal, and what type of payback plans they offer. These questions should give you a good idea of the lender and if the kind of loan products they offer will be a good fit for your finances or not. If the loan associate gives you any answers you find suspicious, do not waste your time working with them. 

Look at Loan Reviews 

Most reputable lenders have a rating from the Better Business Bureau. The Better Business Bureau is a nonprofit organization that houses online reviews and company details about different businesses in the United States. You can also find loan reviews on the lenders’ websites or on social media. Looking at reviews from a lender can give you a great idea of what it is like to work with them. If you noticed that many people were unsatisfied with their borrowing experience, it might be a sign to stay away from that particular lender. It can also help you spot a loan scammer quickly,

Check Out the Lender’s Website

It may also be a good idea to check out the lender’s website. Established lenders usually have a full website with pages dedicated to talking about the different loan products they offer. Take a look at these pages and review the information lenders give about their products. If you have previously spoken to a loan agent, make sure the information on their website matches up with what you were told. 

Watch Out for Loan Scam Warning Signs

Most lenders who are not legitimate give telltale warning signs borrowers should look out for. Below is more information on some red flags to look out for when deciding on a lender. 

Legitimate Loan Lenders Don’t Ask for Money Upfront

While lenders do require a few personal details, such as your physical address and bank account number, they should not ask you for any upfront payment or upfront fees. At the time of signing a loan contract, some legitimate loan companies  may charge an origination fee, but an origination fee is only acquired after a borrower signs their loan contract. A legitimate loan company will not have a borrower pay any fees upfront until after they have agreed to and signed their loan contract. 

Legitimate Companies Have More Than One Page on Their Website

If you go to look at a lender’s website and see the entire site is only one page, this is a common sign the lender is a scammer. A lack of information usually means that lenders are trying to hide something. Legitimate loan companies have full websites full of lots of information for borrowers to reference. They also usually have personal finance resources like blogs or debt calculators for borrowers to use for free. 

There are loans out there that are not loan scams, but are not the best idea because of their high interest rates and fees. These loans present themselves as convenient fast cash options for people who can’t find funding anywhere else. Often, they are directed toward people with no credit, poor credit, or a past bankruptcy. While these loans may technically be legal, they almost always set the borrowers up for financial failure. A few kinds of loans to you may want to avoid include:

Type of LoanDescriptionRisks
Payday LoansThese are short-term, high-interest loans that are typically due on your next payday. They are usually for small amounts.The risks include high interest rates that can lead to a cycle of debt, fees for late payments, and potential damage to your credit score.
Car Title LoansThis is a type of secured loan where borrowers can use their vehicle title as collateral. Borrowers allow the lender to place a lien on their car title in exchange for a loan amount.If the borrower defaults on their payments, the lender has the right to repossess the vehicle and sell it to recover their money. This could result in the loss of the borrower’s vehicle.
Auto PawnsSimilar to car title loans, auto pawns allow borrowers to use their vehicle as collateral. However, in this case, the lender retains possession of the car while the loan is being repaid.The risk is that if you fail to repay the loan, you will lose your vehicle. Additionally, interest rates and monthly payments can be high, leading to a cycle of debt.
Loan BrokersLoan brokers are intermediaries who help borrowers find lenders. They don’t lend money themselves but instead connect borrowers with potential lenders.While not inherently risky, some unscrupulous loan brokers might connect borrowers with high-interest lenders or lenders who have unfavorable terms. There may also be additional broker fees.

Although these loan options are legal in most states, many borrowers still consider them loan scams. Financial products like car title loans or payday loans almost always come with astronomically high-interest rates and extremely brief payback terms. These kinds of loans often leave borrowers at risk of missing payments or defaulting on their loans altogether.  

How To Recover After Falling Victim to a Loan Scam 

Have you fallen victim to a scam loan online? Having your financial situation taken advantage of is always a frustrating experience. Get your finances back on track with the helpful tips below:

Report the Loan Scammer

While there may not be anything your local law enforcement can do, you can always contact the Internet Crime Complaint Center or the Federal Trade Commission and inform them of your situation. The Internet Crime Complaint Center is a government-run program that allows consumers to report fraudulent financial institutions. If you have a family or loved one who was a victim of scams from non-reputable online lenders, you can also fill out a complaint on their behalf. 

You can also leave a review with the lender and talk about your experience. Reviews on the lender’s website or even on social media can be a great way to spread the word about scam lenders. That way, other loan seekers can see what happened with your experience and not become loan scam victims themselves. 

Possibly Refinance

If you are still stuck with a balance from your high interest loan, consider refinancing right away. There are plenty of legitimate financial institutions that can help you get out of a bad loan deal. Refinancing with funding options like a bad credit personal loan can be the perfect solution to get you out of a previous loan. Just make sure you thoroughly read your loan contract before accepting any loan offer. 

Look for Loan Forgiveness Programs 

If refinancing is not an option for you, look for loan forgiveness programs. A loan forgiveness program is an alternative to filing for bankruptcy. While these programs have a chance of lowering your overall credit score, they are still a better option than filing for bankruptcy.

Make the Most of the Money You Do Have

While you recover from your loan scam, make the most of the money you do have. If you have not already, create a budget to ensure you are using your money in the most efficient way. Keeping your finances organized is vital to fully recover after going through a loan scam ordeal. 

Benefits of Working With Legitimate Personal Loan Lenders 

Once you’ve done the research and have found a lender who is a good fit for you, it’s time to reap the rewards! Below are a few benefits borrowers can enjoy when they have legitimate personal loans:

Safe Technology 

Legitimate lenders have a secure website to keep information safe and encrypted, so customers don’t have to worry about identity theft or leaving their bank details vulnerable. 

Loan Details Better Suited for Borrower’s Needs 

A reputable lender ultimately has the borrower’s needs in mind, which means they don’t want to stick people with unaffordable interest rates, a super low loan amount, or inconvenient payback terms. 

Potential To Boost Credit Score

You don’t have to worry about keeping up with your payments when you have an affordable loan. Paying off a loan by making timely payments can significantly boost your payment history. Since payment history is the most impactful category that contributes to your credit score, you may see an increase next time you do a credit check!

FAQs With Whether a Loan Company is Legitimate

Here are some FAQs about whether a loan company is legitimate:

How Can I Verify the Licensing of a Loan Company (Bank or Credit Union Included)?

You can verify the licensing of a loan company by checking with your state’s financial regulation department or the Consumer Financial Protection Bureau.

What Should I Do if a Lender Contacts Me Out of the Blue With a Loan Offer?

Be cautious. Legitimate lenders typically don’t contact people out of the blue with loan offers. This could be a sign of a scam. Always do your research before proceeding with any loan offer.

Are There Any Specific Documents or Information That a Legitimate Company Should Provide?

Yes, a legitimate lender should provide a loan agreement that outlines the terms of the loan, including the interest rate, fees, and repayment schedule. They should also provide a Truth in Lending Act disclosure, which includes key details about the cost of your loan.

How Can I Protect My Personal Information When Applying With Loan Companies Online?

Ensure that the lender’s website is secure (the URL should start with “https”) and that they have a privacy policy explaining how they protect and use your information. Avoid providing personal information over email or to a website that does not have these security measures.

What Are Some Reputable Sources for Checking Reviews or Complaints About Loan Companies?

The Better Business Bureau (BBB), Consumer Financial Protection Bureau (CFPB), and your state’s attorney general’s office are all reputable sources for checking reviews or complaints about lenders.

If I’ve Been Scammed by a Loan Company, Can I Get My Money Back?

It can be difficult to recover funds lost in a scam, but reporting the scam to your local law enforcement, your state’s attorney general’s office, and the Federal Trade Commission can help authorities in their investigations and potentially lead to the recovery of some or all of your lost funds.

Are There Any Organizations That Can Help Me if I’ve Fallen Victim to a Loan Scam?

Yes, organizations like the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), and the Internet Crime Complaint Center can provide assistance and resources if you’ve fallen victim to a loan scam.

CreditNinja’s Thoughts On Finding Legitimate Loan Companies Online 

Being an online lender for personal loans ourselves, at CreditNinja, we know that people can be hesitant to apply for loan options online, and they should be in some cases! What you should know is that there are several things you can and should do before applying for an online loan. The best way to protect yourself is to be aware of some red flags. Along with that, know about how you can double check a lender’s legitimacy. If you are curious about CreditNinja, our reviews page is a good place to start! 


  1. New FTC Data Show Consumers Reported Losing Nearly $8.8 Billion to Scams in 2022 | FTC
  2. COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape | U.S. Small Business Administration
    Internet Crime Complaint Center | IC3
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