What Is Loan Fraud and How To Detect It

Oct 10, 2023

Loan fraud refers to any fraudulent activity aimed at deceiving the borrower or the lender of credit facilities. Fraudsters use leaked personal information and misrepresentation to carry out such activities. 

With the rise in digitisation, loan scams are also on the rise. The internet has made it easy to find and target individuals basis their profiles. Scammers can now source information from data breaches and indulge in phishing etc. Due to this, personal loan frauds are on the rise.

A loan scam can be conducted in many ways, and you need to know how to safeguard your interests against them. Though the regulators are trying to curb such activities, we must be informed and take proper measures against the spread of fraud.

Methods of loan fraud

Loan fraud can take multiple forms basis the modus operandi of the scammer and the targets. The following are some common ways in which loan frauds are conducted - 

  • Phishing - The most common mode of online scam in general, where scammers attempt to acquire personal data by posing as a reputed institution or person. Phishing typically happens via fake emails. But it can also happen through malicious websites, advertisements, etc.
    The fake website/link/form will try to gather as much personal information from you as possible. It typically includes your identity number (Aadhar card, PAN card, etc.), bank account details, and other sensitive information. Once the scammers have all this data, they can misuse it to obtain loans in your name. 
    Refrain from clicking on unknown links and verifying the page before submitting your data. Otherwise, a situation might arise where you have to repay a loan that you never took!
  • Data breaches - You must have heard of at least one or two data breach incidents with some or other company. A data breach typically happens when a hacker has successfully hacked into a company’s database. Once someone has hacked in, they can download all the personal data available and use it to apply for loans and other credit-related products. 
  • Processing fee - Taking loans usually entails an element of the processing fee, which is paid to the lender for managing the entire application. Scammers have started using the component of processing fees to dupe individuals. 
    The scam usually involves contacting the target to promise a fake loan offer, typically via phone call. The scammer will ask you to pay an advance or processing fee before the loan gets approved. Once the fee is paid, the scammers will vanish with it.  
  • Misuse of documents - Involves using stolen or forged documents to apply for a loan in your name. Scammers usually get hold of such documents when people aren’t too careful with the whereabouts of such sensitive documents. 
  • Fake loan brokers - Scammers target individuals with lower credit ratings by posing themselves as loan agent or broker. The fraudster seeks to obtain a fee on the promise of providing the target with a successful loan application. Once the fee is received, the scammers will vanish. 

Tips to safeguard yourself from a loan fraud

Loan fraud can very well be prevented if you are vigilant enough. The following tips might help you to ensure your safety against such scams - 

  • Official channels - If you ever need to contact your financial institution, do it only via official means. Only use contact details from the official website or mobile banking application. In case you need to contact customer support, only call the numbers mentioned on their website or app.
    An excellent way to check for the official website can be your banking documents. These days the documents issued by your bank usually contain the details of their official website or mobile application. It is important to remember that social media has multiple fake profiles of many institutions. Hence you are recommended to deal with accounts only where you see a verified symbol to ensure authenticity. 
  • Cautiously saving data - While making online payments, you are usually asked to store the details of payment mode by websites and apps. It is essential to be careful about which businesses you are saving your payment information with. 
    If a data breach happens at one of such websites or apps where your payment information was saved, you should change your password or pin to ensure security. 
  • Monitoring your account - You should constantly monitor your account and its related transactions. Regular monitoring will ensure that no unauthorised transactions occur via your account. If you spot any transaction you didn’t make, immediately contact your bank for the next steps. 
  • Verifying the sender - Always verify the identity of any individual who might contact you as a bank’s representative. If you receive any links, read the URL properly before clicking to ensure its legitimacy.
  • Staying alert - You must be aware of new scams and prevention methods. You can use HDFC Bank Vigil Aunty to learn about fraud, prevention techniques and guidance in case you, unfortunately, become a victim.
  • Masked documents - Instead of using your original documents like your Aadhar card, you can always use their masked version whenever possible. UIDAI, the issuing authority for Aadhar cards, also lets you download its masked copy. As per government guidelines, the masked copy can be used for multiple scenarios and potentially prevent the misuse of your documents.

Since you can save yourself from fraud, you might be planning to get a Personal Loan. You can apply for HDFC Bank Personal Loan, via a video KYC. The loan amount can be used for various purposes and is disbursed within 10 seconds for pre-approved customers; four hours for non-HDFC bank customers.

Don't be a victim of these insurance frauds. Read more. - What is insurance fraud? | What is phishing? | What is payment fraud?


Join Vigil Army, where Vigil Aunty will decode various frauds and give people a heads-up on the dos and don’ts of combating frauds online. To join the Vigil Army, send ‘Hi’ to her via WhatsApp number: 7290030000


Disclaimer: The appearance of Vigil Aunty's bindi has been refreshed with a change in color from red to blue for a distinctive look.