A Guide to Personal Loan Scams in India

Personal loan frauds are on the rise in India, exploiting the growing demand for quick credit. If you've received unsolicited calls or messages offering instant loan approvals, often for amounts like ₹5,00,000, you may be a target. These frauds typically involve fake apps, social media traps, and advance fee cons, tricking victims into sharing sensitive data or paying upfront charges. In this guide, we break down the most common Personal Loan frauds in India and how to protect yourself from falling prey.

Personal Loan Frauds and Their Types

Personal loan frauds in India involve scammers posing as legitimate lenders to steal money or personal data. These scams occur both online via apps, websites, and emails and offline through calls or in-person interactions.

Fraudsters use fake logos, forged documents, and false reviews to appear credible, often exploiting borrowers’ urgency for quick funds. Both urban and rural populations are targeted, making vigilance essential to avoid identity theft, financial loss, or credit damage.

Types of Personal Loan Frauds

Do you know scammers take multiple approaches to deceive borrowers? Here are the major types of Personal Loan fraud in India:

1. Fake Loan Apps and Websites

Fraudulent apps and sites mimic real lenders, offering instant loans with minimal checks. Victims are asked to share personal data, which is later used for blackmail or identity theft. In India, illegal lending applications are on the rise daily, with more than 600 recognised by the Reserve Bank as of March 2022. Many of these apps could be found in app stores, highlighting the pervasive nature of this online financial threat.

2. Advance Fee Scams

Scammers demand upfront payments, processing fees, insurance, or GST before disbursing loans. Once paid, they vanish. Legitimate lenders never ask for large pre-loan payments.

3. Fake Loan Approval Calls and Emails

Impersonators send forged approval letters and demand fees to process the loan. Victims often realise the fraud only after sharing sensitive information.

4. Phishing and Data Theft

Borrowers are tricked into revealing OTPs, Aadhaar numbers, or bank details through fake messages or emails. This data is used for unauthorised transactions.

5. Loan Sharks Posing as Digital Lenders

Unlicensed lenders offer small loans online, then resort to harassment, public shaming, and exorbitant interest rates during recovery.

As reported by Bloomberg on January 4, 2022, in The Economic Times, some online lenders in India imposed annual interest rates reaching 500% and utilised "mafia-style collection methods" which have also led to victims committing suicide.

Warning Signs of a Loan Scam

The following are several warning signs that you should be alerted about before it’s too late:

1. You may be given false assurances that your loan will be approved without checking your credit score or proof of income.
2. Creditors are asking for advance payments even before the disbursement of the loan.
3. No registered office address or official contact details of the lender.
4. Suspicious-looking websites or applications that are not on the RBI's authorised NBFC list.
5. Loan apps that demand unnecessary permissions for access.
6. Receiving messages from unofficial email IDs with spelling errors.
7. No clear communication about foreclosure charges, penalties, or processing fees.
8. Demands to transfer money to any of the personal bank accounts, wallets, or via UPI instead of official company accounts.
9. Forcing borrowers to make a quick decision with “limited-time” offers.
10. Legal and authorised lenders provide a detailed loan agreement with all the terms and conditions clearly mentioned in writing. However, loan scammers do not follow this practice.

How to Protect Yourself From Personal Loan Scams in India?

Scammers are becoming more intelligent, but you can remain one step ahead. Here's how to avoid Personal Loan fraud in India.

1. Verify the Lender – Whether it’s NBFC or bank, you should check if it’s registered with the Reserve Bank of India.
2. Download Apps Carefully – Refrain from downloading applications from APK files shared via WhatsApp or email. Download loan apps from reliable app stores that have the validation of genuine users.
3. Never Pay Upfront Fees – Processing fees are often subtracted from the loan amount and not paid separately.
4. Read the Fine Print – Sign the loan agreement only after reading it properly.
5. Be Aware of Personal Data Requests – Avoid giving away OTPs, login credentials, or private information unless you are confident of the lender's trustworthiness.
6. Report Suspicious Activity – If you find anything fraudulent or doubtful, take advantage of the RBI’s Sachet portal (sachet.rbi.org.in) to report unauthorised lenders.
7. Confirm Official Communication Channels – Check if your lender is using official email ID, customer care numbers, and secure websites starting with “https://”. If they are using a personal Gmail or WhatsApp account, they may be fraudsters.
8. Monitor Your Credit Report – ​​It is a good idea to check your CIBIL report frequently to see if any unauthorised loans have been taken out in your name.
9. Check RBI’s Whitelist/Approved List – Before getting any loan, verify the loan apps on a whitelist that is shared by the RBI.
10. Trust Your Intuition - If any loan offer seems "too appealing to be true" (for example, a quick loan with no credit checks), it can be a scam.

What to Do if You’re a Victim?

If you are already a victim of loan fraud, here are some steps you can take to minimise further risk:

1. First, contact your bank to safeguard your savings or loan-linked account.
2. File a complaint with the regional cybercrime cell using the National Cyber Crime Reporting Portal (cybercrime.gov.in).
3. Inform the police about your past transactions and communication with the lender.
4. Monitor your credit report regularly to detect unauthorised loans.
5. Check your credit history frequently to identify unlawful loans.

To Conclude

Personal Loans can be a quick and reliable option to fulfil immediate financial needs, but only if secured from reputable lenders. As instances of fraud increase, it's more important than ever to be alert, verify the legitimacy of creditors, and never accept offers that sound too good to be true. Understanding these Personal Loan fraud indicators while taking proactive steps will help you safeguard yourself and your money from scammers.

Are you looking for a safe, reliable, and convenient financing experience? Opt for a trusted financial partner like Poonawalla Fincorp, where Personal Loans are offered with clear terms, zero hidden charges, and the assurance of RBI-regulated operations.

FAQs

What is the reason behind Personal Loan scams being so common in India?

As the demand for quick Personal Loans is increasing, along with less awareness among citizens about financial fraud, it leads to increased opportunities for scammers.

Is it possible to report a doubtful lender directly to the RBI?

Yes, debtors can report illegal online lenders or acts of harassment using the RBI's Sachet Portal (sachet.rbi.org.in) or by filing a complaint with their regional cybercrime cell.

Are all quick loan offers unsafe?

No, some regulated banks and NBFCs offer quick digital loans. But before availing them, one must make sure the lender is RBI-registered, the terms are properly mentioned, and no advance payments are demanded.

Can fraudsters utilise my contact information if I allow app permissions?

Yes, several deceptive lending applications exploit your contact information by sending threatening or unpleasant messages to friends and relatives if you fail to pay back the loan on time, even if you have already done so.

What effect can a Personal Loan scam have on a credit score?

If a loan is taken by a scammer using your name and documents, it can show up as unpaid debt on your credit report and negatively impact your credit score. Therefore, it’s necessary to regularly check your CIBIL or other credit reports and detect any such fraud early.