Loan Insurance Scams

Has a lender you were hoping to get an unsecured loan from asked you to pay loan insurance, up-front before you’ve even received your money? Unfortunately, this is a scam, one that we’re seeing more and more of. When the economy is less than great and people start to feel the pinch, scammers tend to come out of the woodwork to prey upon people in desperate financial situations.

To help you avoid these scammers and make sure that you never fall victim to one of their fraudulent loan insurance plans, we’ve compiled all the information you need to know about this scam so you can be prepared to deal with these scammers should you ever become a target.

Click here for more information about how Loans Canada is dealing with loan scams.

The Scam

Here’s how a loan insurance scam tends to play out. You’ll get in contact with a loan company who offers you everything that you want, same day approval, thousands of dollars more than you expected, low-interest rates and a reasonable payment plan. What’s not to like? You’ll get the money you need with all the benefits you only dreamed of.

Then you’ll be asked to pay for loan insurance. These scammers have a variety of different lies to tell you as to why loan insurance is required, but typically the reason will have something to do with alleviating some of the risks for the “lender”. The amount they’ll ask for will range anywhere from a couple hundred dollars to a thousand dollars. And you’ll be asked to transfer the money to them via a Western Union online transfer or a pre-paid debit or credit card.

Note: To learn about how loan scams target vulnerable Canadians, check out this article we wrote for the Better Business Bureau.

Never…

Remember that these scammers can be extremely convincing and will try to convince you that loan insurance is an industry standard and that no matter what loan company you work with you’ll be asked to provide loan insurance. This is, of course, a lie, no reputable lender or loan company will ever ask you to transfer them any amount of money before they’ve even given you your loan. Under no circumstances should you ever…

Transfer money via Western Union
Provide your lender with a pre-paid debit, credit card, or gift card
Give any amount of money to a lender requesting payments before you’ve received the full amount of your loan

What Will Happen?

It’s crucial that you understand that these scammers are trying to take your money and once they do that you will never hear from them again. If you send money to someone via Western Union, a pre-paid card of any kind or something similar, it is extremely difficult if not impossible to reverse the transaction. This is the exact reason why they ask for the “loan insurance” to be transferred to them via one of these methods. These forms of payment aren’t regulated in the same way that other forms of payment are and therefore are the perfect way to scam someone out of their hard earned money.

How to Identify a Loan Scam

How to Deal With Being the Victim of a Loan Insurance Scam

If you think you’re the victim of a loan insurance scam, it’s imperative that you get in contact with both your local police and the Canadian Anti-Fraud Centre. Furthermore, if you have provided you with online banking information to a “lender”, please get in contact with your bank right away.

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Caitlin Wood

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.