How to identify and stay safe from Loan Scams

The concept of credit — allowing you to borrow money to take care of immediate needs and being able to pay back later is a blessing to many, especially in times of emergencies such as job loss or a medical emergency. Fraudsters take advantage of the vulnerability of innocent people in such scenarios by offering a supposedly credible loan and loot them of their money, in a loan scam.

What is a Loan Scam?

In a loan scam, a fraudster scams individuals with the false hope that they can get a loan they desire quickly and easily. The fraudster builds a deceitful plan based on the victim’s needs. If, for instance, an individual does not have a good credit score to apply for a loan in an established bank or needs a huge sum of money within a very short time frame, a fraudster would cleverly convince the victim of being able to help them with a loan as per their requirement in a matter of minutes.

There are two major repercussions of falling for a loan scam — either the fraudster would ask for a certain amount upfront as security, that would never be returned or would extract lump sum amounts in the name of processing fee, late fee, interest, and so on — ultimately resulting in huge losses for the victim.

How does a Loan Scam happen?

Loan scamsters exploit the unmet need for credit and target vulnerable borrowers by offering supposedly no-strings-attached credit. They will contact you via SMS, email or phone and often ask you to download an app to fill in your details and get instant loan approval.

On downloading the app, they will request access to everything on your phone — your entire contacts list, photos and videos. Soon after you fill in basic details such as your Aadhaar, PAN, address, and the amount you need, you will see your account credited with cash.

These loans are offered under complex terms and conditions that would not be communicated in the initial stages. They deceive victims with the promise of a low interest rate, and later claim that the low interest rate was only for a limited period, post which the interest is hiked up to exorbitantly high rates — a detail they do not mention at the time of loan disbursal. Along with high interest rates, fraudulent instant loan companies charge heavy penalties on a daily basis for non-repayment of loans. Add to that high processing fees and other penalties.

While some fraudsters ask for certain documents such as — a copy of 3 months’ bank statement, Aadhar card, and PAN, others ask for no such documents. In both cases, however, the loan amount is disbursed within minutes. The apps, on the pretext of advancing a loan, access all information from the victim’s phone which could later be used by the fraudster to dupe the individual of more money or perpetrate other financial crime.

Victims who fall for such loan scams and accept the money offered are harassed and abused by recovery agents to repay the loan amount. Obscene messages, indecent pictures, and abusive texts are sent to the person as well as others on his/her contact list.

Red flags to avoid a Loan Scam

Here are a few red flags that immediately tell you that you have been contacted by a loan scamster:

• The lender’s organisation is not registered with Reserve Bank of India and is not associated with any known bank or NBFC
• The loan app is unverified on the app store, does not reveal details of the loan terms and conditions, or does not check your credit report before approval of the loan
• The lender is not registered, does not have a physical office address, or a legitimate website
• A loan fee is demanded upfront before disbursing the loan
• No credit verification is done and it is communicated that the loan is credit free
• The lender will offer a very low rate of interest and it is valid only for a limited period of time

How to keep away from Loan Scams:

• Never share your card details to anyone via phone, email, or other means.
• Always evaluate the lender’s physical address and the website to know their credibility.
• Do not share your OTP or other personal information with anyone.
• Understand the loan offer because scams will always offer something suspiciously beneficial.

Important reminder — PhonePe never asks for confidential or personal details. Ignore all mails claiming to be from PhonePe if they are not from the phonepe.com domain. If you suspect fraud, please contact us on support.phonepe.com or file a complaint with the police on https://cybercrime.gov.in/