Common Payday Loan Scams: What They Are and How to Protect Yourself from Them

Although payday loans seem a great idea for unexpected bills or financial emergencies, they may turn out to be a threat to you. This is because scammers never sleep, looking for ways to benefit from vulnerable individuals who are not financially sophisticated.

Common Payday Loan Scams  What They Are and How to Protect Yourself from Them

Even if you've never taken out payday loans or have always dealt with legit lenders only, you can still face a scam. This is because a scammer can get ahold of your personal and financial information and force you to pay for a loan you've never borrowed. Let's talk about the main signs of payday loan scams and find out how you can avoid them.

What Are Payday Loans?

A payday loan, also known as a cash advance loan, is a short-term, high-interest debt that must be repaid by a borrower's next paycheck. Payday loans are usually used by people who need money fast and have credit issues. These two factors make it challenging for them to seek traditional bank loans.

Payday loan options always come with small amounts and high costs. Depending on the state, borrowers can access between $100 and $1,000 and repay the funds in 2 to 4 weeks. Payday loan interest rates are several times higher than those on conventional loans. An annual percentage rate is usually a three-digit number, making a cash advance loan difficult to manage.

Is a Payday Loan a Scam?

A payday loan itself is not a scam, even though it's an expensive borrowing option. Although a bank or credit union may offer customers more favorable terms, they are not available to everyone due to strict eligibility criteria. That's the moment when payday lenders come to the rescue. They have relaxed requirements and provide underbanked borrowers with pretty fast financial assistance. By setting higher rates, they offset potential risks associated with bad credit and defaults.

If you deal with a licensed lender that operates under the state lending law, a payday loan is more likely to be a safe option. However, a borrower also faces responsibility. Payday loans should be used cautiously. You also need to have a clear repayment plan without rolling the loan over or getting another debt to cover the previous one.

However, it's hard to say how ethical payday loan practice is. Some states, for example, Texas, have fewer restrictions, so borrowers can get into a long-term debt cycle. Additionally, a payday loan can become a scamming tool as it's typically an option for vulnerable individuals. Payday loan scams target people who need money desperately and are usually limited in options. Therefore, it's much easier to mislead them.

Types of Payday Loan Scams

There are three most common types of scams used by fake payday lenders or collectors.

Fake Check or Deposit Scams

This popular scam strategy is about getting your personal information and sending you a fake check or a deposit on a platform like Venmo, CashApp, or Zelle. Then a scammer will ask you to send this amount back as it was deposited by mistake. This is how it works: you transfer the amount to a scammer and then find out that the initial deposit was never made or no good. A check will bounce after a couple of days, while remotely deposited funds will show up as "pending" and never clear.

Upfront Fee Scams

An advance fee loan scam is when a lender asks you to pay something before you get a loan. They usually disguise it under origination fees for processing your loan request. But keep in mind that in most cases, processing fees are deducted from your loan amount after you get approved. Thus, you don't need to pay anything out of pocket. Although a legitimate payday loan company can also charge application or origination fees upfront, it will never guarantee you a loan.

Fake Debt Collection Scams

Fake debt collectors typically call those who have applied for a payday loan but didn't accept offers or get the funds. However, they can also call those who really have an unpaid debt. Scammers usually contact individuals and say that they owe them money and must repay it immediately. As are regulated by federal law, they are obliged to stick to fair debt collection practices. Thus, there are a few ways to determine whether a debt collector is legitimate.

Red Flags: Features of a Payday Loan Scam

Forewarned is forearmed. Below are some criteria that can indicate that the person you communicate with is trying to deceive you.

You've Never Used Payday Loans But Receive Debt Collector Calls

This may happen if you ever complete a payday loan application form through an illegitimate payday loan company. Once it gets your personal information, it sells it to fraudsters. Then, you receive calls from people who pose as lenders or debt collectors and ask you to repay the amount you owe. As you can guess, if you've never borrowed money from payday lenders, it's a 100% scam.

Emails Come from Generic Service Providers

Scammers often use email addresses from generic service providers, such as Gmail, Hotmail, or Yahoo. Legitimate companies typically have their own domains to go along with their email accounts. Thus, if you see an account that doesn't correspond to the company's domain name, it can indicate a scam. We recommend you not open emails that you don't trust. Phishing emails often result in financial fraud.

Spelling or Grammar Errors

Scam emails often contain various spelling and grammar errors. This is made to work around spam filters so the letter will be able to reach your email inbox. A scam email may also contain random words or look like it was generated.

Suspicious Payment Methods

Fraudsters often choose payment methods that make it very difficult to get the money back. If a lender asks you to pay via apps like Venmo, use a transfer service, for example, Western Union, or pay via gift cards, beware.

You're Asked to Pay Upfront

Although this is not a 100% indicator, many scammers use this method, so it's better to avoid the companies that charge application fees. This is because you never have a guarantee that you'll be approved, even if a lender asserts otherwise. Thus, you can be left with nothing.

Advertising Limited-Time Offers

Time pressure is another strategy that scammers use in order not to give you time to find more information about the company they are allegedly calling from. Scammers may try to convince you that you should act quickly. When you have no time to think or analyze their offer, you're more likely to make a financial decision that is bad for you but beneficial for a scammer.


This is a common feature of fake or unfair debt collectors. They can use pressure and threats to get money out of you. The most common threats include wage garnishment, Social Security payment suspension, or placing in a blacklist for banks and employers. Remember that such practices are prohibited, and lenders or debt collectors don't have the legal authority to do this. Scammers are only trying to scare you and make you act imprudently. Hang up immediately if the collector starts to threaten you.

Sound Promises and Guarantees

Scammers often advertise what people want to see in order to make their offers exceptional and desirable. For example, they can guarantee you approval even if you don't have any source of stable income or you already default on a loan. However, the only reason why a lender doesn't care about your financial situation is because they are not going to give you money. Therefore, they don't expect to get it back.

A legitimate lender will not mislead you by providing 100% approval guarantees or no screenings and verifications. Any credible lender needs to ensure you're a responsible borrower who can repay the money back. That is why instant funding, no credit checks, guaranteed approval, and other sound promises are often a sign of fraud. By doing this, lenders want to get your attention and lull you into a false sense of security to get your information or money.

No Licensed Payday Lenders

If a payday lender is not licensed, it's always a risk. You need to always ask for proof to make sure you deal with a loan provider with a recognizable permit or license.

Ways to Protect Yourself from a Payday Loan Scam

Here are a few ways that will help you avoid payday loan scams.

Never Provide Your Personal and Bank Account Information by Phone

Legal companies never ask to provide any sensitive information through the phone or via email. Additionally, you should know what data legitimate lenders may need and what they will never ask you for.

Legitimate lenders may need: name, mailing and residential address, contact info (cell phone number, email), Social Security number, income confirmation, employer details, checking account number, and routing number.

Lenders DON'T ask: log-in information, your credit card number, expiration date, and CVC/CVV number.

Don't Make Any Returns

If an individual or a company sends you a check or a deposit, don't make a return. In most cases, it's a fake, so it will result in losing money. Some scammers may also state that they make a deposit to ensure your bank account is active. However, such checks don't require you to make a return. The deposit amount is typically $1, and it will disappear automatically.

Don't Accept Phone Call Offers

If a company calls you with an offer, be on the alert. Lenders are not the ones who initiate a loan offer. A customer is usually the one who turns to the lender first. Therefore, you need to be suspicious of such representatives.

Avoid Paying Upfront

Most lenders charge fees by deducting their amounts from your loan proceeds. Therefore, you don't need to pay anything before you get the funds from a lender. Remember that paying fees never guarantees you loan approval.

Request a Debt Validation Note

If you get a call from a debt collector, but you're not sure whether it's a scam, ask it to send you a debt validation note. If the debt collector is legitimate, it's obliged to do this under the Fair Debt Collection Practices Act.

What to Do If You Become a Victim of a Payday Loan Call Scam?

If you think that you've been scammed, here are some actions you should take:

  1. Freeze your bank account. Contact your bank or credit union and ask it to close or freeze your account. Then, you can open a new one or ask your institution to change its number.
  2. Reissue the card. Contact your credit card company and report your card was stolen. The issuer will block it immediately and issue a new one linked to a different account.
  3. Freeze your credit. Thanks to this, scammers won't be able to issue new credit in your name. Freezing is possible through major credit bureaus, so contact one of them.

If you already lose money, it may sometimes be possible to turn it back. Below is the list of authorities that can help you with this:

  • Federal Trade Commission (FTC);
  • The Consumer Financial Protection Bureau (CFPB);
  • Local law firms and attorneys;
  • Local law enforcement.

Bottom Line

Payday loan scams can affect even those who have never obtained payday loans. Although these high-interest loans are not scams themselves, they can be a fraud tool. Therefore, you need to learn more about potential threats and signs that can help you indicate them. We recommend you partner with trusted financial institutions only and make sure they use modern security services to protect your information from third parties.

Check the comment section below for additional information, share what you know, or ask a question about this article by leaving a comment below. And, to quickly find answers to your questions, use our search Search engine.

Note: Some of the information in samples on this website may have been impersonated or spoofed.

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Online Threat Alerts Security Tips

Pay the safest way

Credit cards are the safest way to pay for online purchases because you can dispute the charges if you never get the goods or services or if the offer was misrepresented. Federal law limits your liability to $50 if someone makes unauthorized charges to your account, and most credit card issuers will remove them completely if you report the problem promptly.

Guard your personal information

In any transaction you conduct, make sure to check with your state or local consumer protection agency and the Better Business Bureau (BBB) to see if the seller, charity, company, or organization is credible. Be especially wary if the entity is unfamiliar to you. Always call the number found on a website’s contact information to make sure the number legitimately belongs to the entity you are dealing with.

Be careful of the information you share

Never give out your codes, passwords or personal information, unless you are sure of who you're dealing with

Know who you’re dealing with

Crooks pretending to be from companies you do business with may call or send an email, claiming they need to verify your personal information. Don’t provide your credit card or bank account number unless you are actually paying for something and know who you are sending payment to. Your social security number should not be necessary unless you are applying for credit. Be especially suspicious if someone claiming to be from a company with whom you have an account asks for information that the business already has.

Check your accounts

Regularly check your account transactions and report any suspicious or unauthorised transactions.

Don’t believe promises of easy money

If someone claims that you can earn money with little or no work, get a loan or credit card even if you have bad credit, or make money on an investment with little or no risk, it’s probably a scam. Oftentimes, offers that seem too good to be true, actually are too good to be true.

Do not open email from people you don’t know

If you are unsure whether an email you received is legitimate, try contacting the sender directly via other means. Do not click on any links in an email unless you are sure it is safe.

Think before you click

If an email or text message looks suspicious, don’t open any attachments or click on the links.

Verify urgent requests or unsolicited emails, messages or phone calls before you respond

If you receive a message or a phone call asking for immediate action and don't know the sender, it could be a phishing message.

Be careful with links and new website addresses

Malicious website addresses may appear almost identical to legitimate sites. Scammers often use a slight variation in spelling or logo to lure you. Malicious links can also come from friends whose email has unknowingly been compromised, so be careful.

Secure your personal information

Before providing any personal information, such as your date of birth, Social Security number, account numbers, and passwords, be sure the website is secure.

Stay informed on the latest cyber threats

Keep yourself up to date on current scams by visiting this website daily.

Use Strong Passwords

Strong passwords are critical to online security.

Keep your software up to date and maintain preventative software programs

Keep all of your software applications up to date on your computers and mobile devices. Install software that provides antivirus, firewall, and email filter services.

Update the operating systems on your electronic devices

Make sure your operating systems (OSs) and applications are up to date on all of your electronic devices. Older and unpatched versions of OSs and software are the target of many hacks. Read the CISA security tip on Understanding Patches and Software Updates for more information.

What if You Got Scammed?

Stop Contact With The Scammer

Hang up the phone. Do not reply to emails, messages, or letters that the scammer sends. Do not make any more payments to the scammer. Beware of additional scammers who may contact you claiming they can help you get your lost money back.

Secure Your Finances

  • Report potentially compromised bank account, credit or debit card information to your financial institution(s) immediately. They may be able to cancel or reverse fraudulent transactions.
  • Notify the three major credit bureaus. They can add a fraud alert to warn potential credit grantors that you may be a victim of identity theft. You may also want to consider placing a free security freeze on your credit report. Doing so prevents lenders and others from accessing your credit report entirely, which will prevent them from extending credit:

Check Your Computer

If your computer was accessed or otherwise affected by a scam, check to make sure that your anti-virus is up-to-date and running and that your system is free of malware and keylogging software. You may also need to seek the help of a computer repair company. Consider utilizing the Better Business Bureau’s website to find a reputable company.

Change Your Account Passwords

Update your bank, credit card, social media, and email account passwords to try to limit further unauthorized access. Make sure to choose strong passwords when changing account passwords.

Report The Scam

Reporting helps protect others. While agencies can’t always track down perpetrators of crimes against scammers, they can utilize the information gathered to record patterns of abuse which may lead to action being taken against a company or industry.

Report your issue to the following agencies based on the nature of the scam:

  • Local Law Enforcement: Consumers are encouraged to report scams to their local police department or sheriff’s office, especially if you lost money or property or had your identity compromised.
  • Federal Trade Commission: Contact the Federal Trade Commission (FTC) at 1-877-FTC-HELP (1-877-382-4357) or use the Online Complaint Assistant to report various types of fraud, including counterfeit checks, lottery or sweepstakes scams, and more.
  • If someone is using your personal information, like your Social Security, credit card, or bank account number, to open new accounts, make purchases, or get a tax refund, report it at This federal government site will also help you create your Identity Theft Report and a personal recovery plan based on your situation. Questions can be directed to 877-ID THEFT.

How To Recognize a Phishing Scam

Scammers use email or text messages to try to steal your passwords, account numbers, or Social Security numbers. If they get that information, they could get access to your email, bank, or other accounts. Or they could sell your information to other scammers. Scammers launch thousands of phishing attacks like these every day — and they’re often successful.

Scammers often update their tactics to keep up with the latest news or trends, but here are some common tactics used in phishing emails or text messages:

Phishing emails and text messages often tell a story to trick you into clicking on a link or opening an attachment. You might get an unexpected email or text message that looks like it’s from a company you know or trust, like a bank or a credit card or utility company. Or maybe it’s from an online payment website or app. The message could be from a scammer, who might

  • say they’ve noticed some suspicious activity or log-in attempts — they haven’t
  • claim there’s a problem with your account or your payment information — there isn’t
  • say you need to confirm some personal or financial information — you don’t
  • include an invoice you don’t recognize — it’s fake
  • want you to click on a link to make a payment — but the link has malware
  • say you’re eligible to register for a government refund — it’s a scam
  • offer a coupon for free stuff — it’s not real

About Online Threat Alerts (OTA)

Online Threat Alerts or OTA is an anti-cybercrime community that started in 2012. OTA alerts the public to cyber crimes and other web threats.

By alerting the public, we have prevented a lot of online users from getting scammed or becoming victims of cybercrimes.

With the ever-increasing number of people going online, it important to have a community like OTA that continuously alerts or protects those same people from cyber-criminals, scammers and hackers, who are every day finding new ways of carrying out their malicious activities.

Online users can help by reporting suspicious or malicious messages or websites to OTA. And, if they want to determine if a message or website is a threat or scam, they can use OTA's search engine to search for the website or parts of the message for information.

Help maintain Online Threat Alerts (OTA).

Common Payday Loan Scams: What They Are and How to Protect Yourself from Them