How to check if a loan company is legitimate

By Izzy M Reviewed by Sarah R Edited by Nooreen B
Modified on February 20, 2024
how to check if a loan company is legitimate

When looking for a legitimate loan company, consider their licensing requirements, accreditations, Better Business Bureau (BBB) rating, online reviews, business tenure, and lending history. These are just a few ways to confirm a company is legitimate before agreeing to a loan. 

When you need fast financial relief, there are numerous financial options. But unfortunately, there has recently been an increase in loan scams. About 44% of consumers aged 20 to 29 lose money to fraud!1 

So how can you ensure your personal information stays protected? Learn how to check if a loan company is legitimate so you can safely apply for emergency cash. 

What Is a Loan Scam?

A loan scam is a fake financial transaction offered by a person or entity that commits fraudulent activity. Scammers typically try to gain access to your Personal Identifiable Information (PII) to compromise your identity and finances.  

These are a few examples of personal identification numbers:

  • Your Social Security number (SSN).
  • Individual Taxpayer Identification Number (ITIN).
  • Credit card number.
  • Passport number.
  • Driver’s license number.

Scammers use various deceptive practices to trick consumers into thinking they operate a legitimate business. Loan scammers typically create fake websites, company logos, caller IDs, and social media pages to impersonate legitimate loan companies. Everyone is at risk of working with fraudulent businesses, so it’s essential to know how to spot a loan scam. 

How Common Are Loan Scams?

Millions of people become victims of loan scams every year due to realistic impersonations of legitimate loan companies. According to the Federal Trade Commission (FTC), eight million fraud reports were made in 2021! Unfortunately, there has been a steady rise in loan scams lately. Fraud reports increased by 70% from 2020.

In 2021, there were approximately 5.8 billion dollars in losses. Consumers also had roughly 2.3 billion dollars in losses from government imposter scams. These figures can be alarming, but thankfully there are bright red flags that signify you are working with a loan scammer.      

Warning Signs of Personal Loan Scams 

There are numerous debt relief scams online, so it’s critical to do thorough research before applying with a financial institution. Below are common tactics used by loan scammers that you need to be aware of. Knowing what to watch out for can make it easier to avoid predatory lenders and scams.

Sense of Urgency

Suppose you submit your contact information for an online personal loan, and the lender starts blowing up your phone or email inbox. In that case, you might be dealing with an illegitimate company. 

Legitimate financial institutions do not pressure potential borrowers to apply. You may receive additional information about the company after inquiring. Still, you should not be bombarded with excessive emails, texts, or phone calls. If you feel like the lender is creating a sense of urgency, it may be better to avoid further communication.   

Harassing Behavior 

Harassment is any unwelcome behavior from a person or entity. According to the Fair Debt Collection Practices Act (FDCPA), the following actions can be considered creditor harassment:

  • Repetitive phone calls
  • Coarse or offensive language
  • Threats of violence
  • Other behavior meant to annoy

Have you inquired about quick cash loans online and are now dealing with harassing behavior from the lender? It’s in your best interest to avoid working with that financial institution. Legitimate lenders do not harass potential borrowers. If a lender does display harassing behavior, you can report them to the Consumer Financial Protection Bureau (CFPB). 

Guaranteed Approval

You can look for instant bad credit loans if you have negative information on your credit report and bad credit. While there are lenders that have flexible qualification requirements, take caution if you come across a lender that advertises personal loans with guaranteed approval. You may be in danger of personal loan fraud if you get loan approval before undergoing a credit check or providing income information.

But remember that guaranteed approval is not the same as instant approval. Many reputable online lenders promote instant approval because the approval process for legitimate personal loans is quick and secure.  

Payment Requested

While a legitimate lender may ask for an application fee, you should never expect to pay money upfront before you receive emergency cash or read a financial contract. You may not be dealing with a legit loan company if the loan company is adamant about payment for immediate payday loans or personal loans. Avoid working with any loan company that requests money through an untraceable payment option like cryptocurrency or prepaid cards.    

Loan Offers Over the Phone 

Many borrowers work with online lenders because they offer convenience and a faster approval process. But when you apply for online installment loans with instant approval, you should be cautious of lenders that make offers over the phone. It is illegal for loan companies to make loan offers over the phone and request an upfront payment. Online lenders should have a secure website that allows you to provide your personal and bank account information safely.      

What To Do if You Paid a Loan Scammer

If you think you have been the victim of a loan scammer, it’s essential to take immediate action. The steps you need to take depend on how you made a payment to the scam artist.  

  • Debit or Credit Card — Inform a financial agent that there has been a fraudulent charge and ask for a payment reversal. A payment reversal allows you to get your money back from a transaction.  
  • Gift Card — Contact the company that issued the gift card. You may be able to get your money back if you explain that the gift card is part of a loan scam.   
  • Wire Transfer — Contact the company and inform them of the fraudulent transaction to potentially get a reversal payment. You can also report wire transfers through a bank or credit union by speaking with the fraud department. Explain the situation and ask the agent to reverse the wire transfer. 
  • Cryptocurrency  — Unfortunately, cryptocurrency payments are usually not reversible unless the payee agrees to send the money back. However, you can try contacting the crypto company and explaining that you are the victim of an illegitimate loan servicer.    
  • Cash — Mailed cash payments can be intercepted when you contact the U.S. Postal Inspection Service. If you send cash through another mailing service, contact them and ask if they can intercept the package.  

What To Do if a Loan Scammer Has Your Personal Information

Suppose you accidentally gave a scammer your personal information. In that case, you can prevent fraudulent activity by taking action as soon as you realize your predicament. 

If You Gave Your SSN

Your Social Security Number (SSN) should always be secure because if a scammer gets ahold of it, you may become a victim of identity theft. If you give your SSN to an illegitimate loan company, report identity theft immediately to the Federal Trade Commission (FTC). 

If You Gave Your Username And/or Password

If you gave your financial login information to a disreputable lender, change your password to prevent access. Luckily, many online websites have two-step verification processes. If you get locked out of your account, contact the financial institution to report fraud and unlock your account.

Legitimate Loans You Should Avoid Applying For

No matter how desperately you need a loan shark, you should avoid applying for certain types of loans from reputable lenders. All of the loans listed below are debt traps because although they offer fast financial support, they have incredibly high-interest rates. 

When your interest rates are too high, you can struggle during the repayment process because monthly payments will be unaffordable. You risk falling into default if you miss multiple payments due to monetary struggles. A loan default can result in serious financial issues that disrupt your life. 

Type of LoanBrief Explanation
Payday LoansThese are short-term, high-interest loans that are typically due on your next payday. They are usually for small amounts and are often used to cover emergency expenses.
Pawn Shop LoansThese are loans where you provide a personal item as collateral. The pawn shop gives you a loan based on the value of the item. If you can’t repay the loan, the pawn shop keeps the item.
Check Advance LoansAlso known as cash advance loans, these are short-term loans where you write a check for the amount you are borrowing, plus a fee. The lender holds onto the check and cashes it on the agreed upon date, usually your next payday.
401(k) LoansThese are loans that you take from your own 401(k) retirement account. You must repay the loan with interest, and if you don’t repay it on time, it can have significant tax implications.
Auto Title LoansThese are short-term, high-interest loans where you use your car title as collateral. If you can’t repay the loan, the lender can take your car.
*Please note that all these types of loans can carry significant risks and high interest rates. It’s important to fully understand the terms and conditions before taking out such loans.

What Occurs After Loan Default? 

Legitimate business lenders typically report missed payments to one of the three major credit bureaus (Equifax, TransUnion, or Experian) when the bill is 30 days late. Late payments will remain on a credit report for two years. Unfortunately, your credit history will be negatively affected for several months! In the future, you may have fewer financial options because most legitimate lenders avoid working with borrowers with high-risk behavior in their credit reports.   

Lenders and brokers may sell the debt to a collection agency when a borrower defaults on a loan. Debt collection agencies will hound you for payment; if you fail to pay, they may file a lawsuit against you. If a debt collection agency sues you, you will have to appear in court. When you need money urgently, comparing loan offers and paying close attention to the repayment terms is critical. 

How To Get Money in My Bank Account Without a Loan?

If you want to avoid any risk of falling for a loan scam, you can look for alternative ways to get money in your bank account. There are plenty of ways to get money without applying for a loan and having information reported to the credit bureaus, such as:

  • Complete online surveys through Swagbucks or Survey Junkie.
  • Reduce your monthly expenses to increase your income. 
  • Walk dogs or house sit pets through Rover or Wag. 
  • Sign up to be a rideshare driver through Uber or Lyft.
  • Have a yard sale to earn money from unused items.

FAQs on How To Check if a Loan Company Is Legitimate

What should I look for in a legitimate loan company and how can I research them?

When looking for a legitimate loan company, consider their licensing requirements, accreditations, Better Business Bureau (BBB) rating, online reviews, business tenure, and lending history. You can research a loan company by visiting their website, checking their BBB profile, reading customer reviews, and verifying their license with your state’s financial regulatory agency.

What are the different types of loans and how can I understand their terms?

There are several types of loans including personal loans, auto loans, home loans, student loans, and small business loans. Each type of loan has its own terms and conditions, which should be clearly stated in the loan agreement. These terms include the interest rate, repayment schedule, fees, and penalties for late or missed payments. It’s important to read and understand these terms before accepting the loan.

How can I verify a loan company’s reputation, licensing status, and registration?

You can verify a loan company’s reputation by checking their BBB rating and reading customer reviews. To verify their licensing status and registration, you can check with your state’s financial regulatory agency or the National Multistate Licensing System & Registry.

Who should I contact if I have questions about a loan, and who regulates loan companies?

If you have questions about a loan, you should first contact the loan company. If you have further concerns, you can contact your state’s financial regulatory agency or the Consumer Financial Protection Bureau. Loan companies are regulated by both state and federal agencies, including the state’s financial regulatory agency and the Consumer Financial Protection Bureau at the federal level.

How can I report a suspicious loan company and what role does the Better Business Bureau play?

If you suspect a loan company is operating illegally, you can report them to your state’s Attorney General’s office, the Federal Trade Commission, and the Consumer Financial Protection Bureau. The Better Business Bureau (BBB) is a non-profit organization that collects and provides business reviews. They also mediate disputes between consumers and businesses; so if you encounter a personal loan scam, you could submit a complaint.

Where can I find a list and reviews of both legitimate and illegitimate loan companies?

You can find a list of legitimate loan companies on the websites of regulatory agencies like the Consumer Financial Protection Bureau or your state’s Department of Financial Institutions. You can also check with the Better Business Bureau. Reviews of both legitimate and illegitimate companies can often be found on consumer review websites, forums, and social media. However, be cautious as reviews can sometimes be manipulated.

CreditNinja on Loan Scams

In 2022, American consumers lost about $8.8 billion to scams and fraud.4 If you want to apply for a loan, you need to know how to spot a loan scam. Scammers are getting better at deception but still display various bright red flags. If there is a lender you want to work with, take time to do thorough research on them to verify the company is legitimate! Knowing how to check if a loan company is legitimate can help you avoid fraudulent activity and financial loss.


  1. The Young Fall for Scams More Than Seniors Do │ The New York Times 
  2. What Is Considered Creditor Harassment? │ Busch, Reed, Jones & Leeper, P.C.
  3. What To Do if You Were Scammed │ Federal Trade Commission
  4. Americans Lost Record-Breaking $8.8 Billion to Scams in 2022 │ AARP
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