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How to Spot a Personal Loan Fraud Before it is Too Late?
Posted on Friday, March 21st, 2025 | By IndusInd Bank
Personal loans have become a go-to solution for many Indians, offering quick funds with minimal paperwork. Whether it’s for home renovations, medical expenses, or an unexpected financial crunch, these loans provide much-needed flexibility.
But as digital lending grows, so do the risks. Fraudsters are constantly finding new ways to exploit borrowers through personal loan scams. Fake loan apps, phishing calls, and too-good-to-be-true offers are everywhere. If you’re not cautious, you could end up losing money, personal data, or worse—fall into a cycle of fraudulent debt.
So, how can you tell a legitimate lender from a scammer? Let’s break down the most common loan frauds, their warning signs, and real-life cases—so you can protect yourself before it’s too late.
Types of Personal Loan Scams
Fraudsters are getting smarter, constantly evolving their tricks to catch unsuspecting borrowers off guard. Here’s a closer look at some of the most common types of personal loan frauds, how they work, and real-life examples that highlight their devastating impact.
1. Fake Loan Apps & Websites
| How This Scam Works? | How to Spot the Red Flags? |
| You come across an app or website promising instant loans—no paperwork, no credit checks, just quick approval. But once you apply, things take a turn. Either they steal your personal data, demand upfront payments, or harass you later with exorbitant charges. | – The app isn’t available on trusted platforms like Google Play or the App Store. – The website looks poorly made, with missing contact details or broken links. – Loan agents ask for KYC documents via WhatsApp or personal email instead of secure portals. – No physical office address or a valid customer support number. |
A Real-Life Case of Fake Loan Applications
Earlier this year, the Enforcement Directorate (ED) cracked down on a massive ₹719 crore loan scam linked to fraudulent loan apps. These apps, promoted through unofficial websites and social media, lured borrowers with attractive loan offers. But instead of helping, they misused borrowers’ personal data for extortion and harassment.
2. Upfront Fee Scams
| How This Scam Works? | How to Spot the Red Flags? |
| You’re told you’ve been pre-approved for a personal loan—no income proof required, no credit checks. But before the loan is processed, you need to pay a small fee for verification or processing. Once you transfer the money, the so-called lender vanishes. | – Loan approval without checking your credit history. – Requests for fees via UPI or personal bank accounts before disbursal. – No official loan sanction letter or agreement after payment. |
A Real-Life Case of Upfront Fee Scams
Earlier this year in Bengaluru, the Cyber Crime police registered a case against unknown people for cheating people on the pretext of offering instant loans. The criminals were misusing the name of a private company, that runs a digital lending app, by creating email IDs resembling the company’s name.
The scammers were sending emails in bulk to random unsuspecting people, offering them instant loans. They duped several people in the name of collecting “processing fee” with the promise of loan approval. The loan never came through.
3. Phishing & Impersonation Scams
| How This Scam Works? | How to Spot the Red Flags? |
| You receive a call, email, or SMS claiming to be from your bank. The agent offers you an exclusive pre-approved loan—but there’s a catch. To proceed, you need to share your OTP, Aadhaar number, or login details. Within minutes, scammers gain access to your bank account and wipe out your funds. | – Emails from generic domains (Gmail, Yahoo) instead of official bank addresses. – Links directing you to websites that don’t match the bank’s official portal. – Pressure tactics—asking for immediate action, threatening loan cancellation. |
A Real-Life Case of Phishing & Impersonation Scam
A Bengaluru resident lost ₹5.8 lakh after clicking on a fake loan approval link received via SMS. Cybercriminals, posing as bank representatives, tricked him into entering his credentials on a fraudulent website.
Also Read: Digital Banking Frauds and its Types
4. Loan Restructuring Scams
| How This Scam Works? | How to Spot the Red Flags? |
| During financial crises—such as the COVID-19 pandemic—fraudsters pretend to be from banks or NBFCs, offering fake loan restructuring or moratorium extensions. Their goal? To extract KYC details, bank credentials, or even scam borrowers into paying fake processing fees. | – Calls or messages about loan restructuring when you never requested it. – Requests for Aadhaar, PAN, or OTPs over phone calls or WhatsApp. – No official confirmation from your actual lender about the offer. |
5. KYC Update Scams
| How This Scam Works? | How to Spot the Red Flags? |
| You receive a message saying, “Your loan account will be blocked if you don’t update your KYC immediately.” Panicked, you share your Aadhaar, PAN, and bank details—only to have them misused for fraudulent loans. | – Threatening messages urging immediate action. – Requests for full KYC over phone calls or WhatsApp. – Links leading to suspicious, non-bank domains. |
A Real-Life Case of Loan Restructuring Scam & KYC Update Scam
During the COVID-19 lockdown in 2020, fraudsters leveraged the RBI’s announcement of an official loan moratorium to trick unsuspecting borrowers.
One such case reported in Mumbai involved cybercriminals calling individuals, pretending to be from their banks, and offering to “process” the moratorium request. Borrowers were asked to share their KYC details and OTPs for verification.
Once the fraudsters obtained this data, they not only gained access to the victims’ bank accounts but also misused their documents to apply for instant personal loans. This elaborate personal loan scam left many borrowers with unauthorized debts, further compounding their financial difficulties during the pandemic.
Identity Theft & Application Scams
| How This Scam Works? | How to Spot the Red Flags? |
| Scammers use stolen Aadhaar and PAN details to apply for loans. Victims often find out only when they receive recovery calls for loans they never took. | – Sudden drops in your credit score. – Receiving statements for unfamiliar loans. – Alerts about unauthorised credit inquiries. |
A Real-Life Case of Identity Theft & Application Scam
Even financial influencers aren’t immune. In 2024, an investment analyst discovered that loans had been taken in his name using his stolen Aadhaar and PAN details. He later faced harassment from recovery agents demanding repayment. You can read more about the case here.
Also Read: Jump Deposit UPI Fraud: Tips to Safeguard Your Money
How to Verify the Legitimacy of a Personal Loan Offer
- Always check if the lender is RBI-registered or an authorised NBFC.
- Visit the lender’s website directly — never click on links from unsolicited messages.
- Download loan apps only from trusted stores, never via forwarded links.
- Call the lender’s official customer care to cross-check any offers.
- Scan customer reviews on RBI Sachet or social media to spot red flags.
- Remember — real offers don’t come with pressure tactics or deadlines.
What to Do If You Suspect or Fall Victim to a Loan Scam
- File a complaint at cybercrime.gov.in.
- Immediately inform your bank to freeze suspicious transactions.
- Change passwords across banking, email, and linked apps.
- Alert credit bureaus to place a fraud alert on your profile.
- File a police complaint and preserve all proof — messages, screenshots, and payment records.
- Share your story with family and friends so they can stay alert.
Wrapping Up!
Online loans offer convenience, but they also attract fraudsters. Scammers prey on urgency, making it crucial to pause, verify, and think before acting.
If an offer seems too good to be true, it probably is. Staying informed about personal loan scams could save you from financial and emotional stress. Always choose verified lenders, double-check offers, and never share sensitive details without due diligence. A little caution today can save you from big troubles tomorrow. Stay safe, stay informed!
