Loan scams can happen in Canadian communities big and small, putting many people at risk each year of having their hard-earned money stolen.
In fact, the Better Business Bureau of Canada warns that people across the country have already lost millions of dollars to all types of financial scams over the past two years.
And the most frightening part?
Successfully recovering stolen money from a scam is rare. This is a high price to pay for a simple mistake.
Canadians count on loans
Having access to lenders can change a life. For many, loan approval can mean the difference between paying the utility bill and buying food to put on the table - or not.
Cue private online lenders.
Private online vendors have changed the financial landscape for many people. Often, these web-based resources have a more favourable outcome for those experiencing financial issues or with denied loan applications from mainstream branches.
However, as the number of online loan vendors has increased so has the number of personal loans fraud cases. By learning to recognize the common signs of a loan scam, you can protect yourself from shady lenders.
“Loan scammers are impersonating many online lenders and similar websites, tricking Canadians into paying to qualify for fraudulent loans."
How to identify a loan scam?
You're asked to pay upfront
A recent Loans Canada survey discovered that close to 45 per cent of credit-constrained Canadians who perceived themselves as financially savvy agree that alternative or online lenders are permitted to ask for upfront payment because it gives additional security.
This misunderstanding could be very costly.
A licensed lender never asks for money upfront. Often illegitimate lenders will convince loan applicants to pay a processing or insurance fee as a condition for approval. Don’t buy into this. Red flags should go off if you’re asked to transfer any money via e-transfer, credit card, or western union transfers as a method to secure a loan.
The lender guarantees approval
Legitimate lenders won’t offer guaranteed approval. They will first verify applicant information and evaluate creditworthiness before approving anything. Guaranteed approval is a manipulative tactic to lure in applicants and collect upfront fees.
Find out why guaranteed approval is a scam here.
Putting pressure on loan applicants
Loan scammers will often put pressure on applicants, giving them little time to realize they’re being swindled – in other words, they try to get applicants to commit quickly. Be suspicious of any tight expiration dates as they can be a sign of a scam.
Do they really exist?
Loans Canada’s survey also showed that credit-constrained Canadians don’t place importance on calling vendors to ask questions and do further research when taking out a loan.
The lack of presence in the real world signals that something might be terribly wrong. Search out independent information on the lender and verify they have an actual office with a legitimate address.
Knowledge protects against fraud
Want to prevent getting scammed? Loans Canada suggests researching lenders, looking for reviews from verified sources and discussing your loan application with trusted family and friends. These are all effective ways to help avoid failing for a loan scam.
“For many years now, we have seen an increase in loan fraud,” says Loans Canada Chief Technology Officer, Cris Ravazzano. “Loan scammers are impersonating many online lenders and similar websites, tricking Canadians into paying to qualify for fraudulent loans. We want to educate people issue to help inform and protect potential victims of this fraud.”
I think I’ve been swindled. Now what?
Each year, thousands of people are scammed and recouping money is near impossible. However, if you become suspicious that a so-called lender might be trying to defraud you, contact your local police and the Canadian Anti-Fraud Centre.