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Has a personal loan lender asked you to pay loan insurance up-front before you’ve even received your money? Unfortunately, this is a scam, one that is becoming increasingly common. Scammers tend to prey upon people in desperate financial situations.

To help you avoid these fraudulent loan insurance scams, we’ve compiled the information you need to protect yourself.

How Does The Loans Insurance Scam Work?

Here’s how a loan insurance scam tends to play out. You’ll get in contact with a loan company that offers you everything that you want. This may include same-day approval, thousands of dollars more than you expected, low-interest rates and guaranteed approval. 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. 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 of hundred dollars to a thousand dollars. And you’ll be asked to transfer the money to them through obscure means such as:

  • A Western Union online transfer
  • 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.

Remember

These scammers can be extremely convincing and will try to convince you that loan insurance is an industry standard. 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 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, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. 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.

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