9 red flags to watch for when shopping for a personal loan

A personal loan could make sense if you need to cover a large purchase or unplanned expense, or when you want to consolidate debt so you can pay it off faster. Personal loans for bad credit could help you get the funding you need even if your credit is less than perfect.

You don't want to choose just any personal loan, though. The goal is to get a good deal on a loan, not stumble into a scam or predatory loan that makes the situation worse. Learn to spot these red flags so you can weed out loans that aren't right for you.

1. Personal loans with no credit check

Your credit scores can influence the interest rates you qualify for and whether you get approved at all. If your credit scores are lower, you might think it's best to avoid the credit check entirely with a no credit check loan. That could be a costly mistake.

Lenders check a borrower's credit to gauge risk. They want to know how likely you are to pay back the money you borrow. A high credit score tends to look less risky to a lender.

The problem with a no-credit-check loan is that the lender has no way to tell how risky you may be. Instead, they simply assume you're high risk—and charge you accordingly. No-credit-check loans typically carry higher costs, fees, and rates than other lenders.

Pro tip: Don't assume your credit will hold you back. Check your eligibility with personal loan lenders that offer prequalified rate quotes using a soft credit check that won't hurt your credit.

2. Lack of transparency

When you're shopping around for personal loans, you need to know a few important details about the loans before you choose one. For example, you should compare:

• Interest rates

• Fees

• Repayment terms

• Minimum and maximum loan amounts

• Credit score and income requirements

Lenders don't always publish credit score and income requirements online, but the other details should be readily available. If a lender's website lacks the most basic information about a personal loan or they seem unwilling to answer your questions, that's a sign that you might want to look elsewhere.

3. Hidden fees

Lenders can and do charge fees for personal loans. They can include:

• Origination fees, which lenders charge to write the loan

• Prepayment penalties if you pay your loan off early

• Late fees

None of these fees should be due before you sign. And reputable lenders should tell you before you borrow what fees you'll pay, if any. It's a good idea to review the terms and conditions for a loan before signing to make sure there are no surprise fees that might apply.

4. High-pressure sales tactics

A rushed decision never feels good, especially when you're borrowing money. Pushy loan officers could lead you to rush into a decision.

If a lender is bombarding you with calls or emails to get you to agree to a loan, ask yourself why they're being so aggressive. And don't sign off on anything until you've had a chance to look over the loan paperwork first.

5. Misleading information

You might come across a bad-credit personal loan with a low rate and feel like you hit the jackpot. The red flag pops up when you find out that the terms a lender is offering are different from what they're advertising online.

Bait-and-switch tactics are classified as unfair or deceptive trade practices, and they’re unlawful. But some scammy lenders still use them.

If you find a sizable discrepancy between the terms a lender initially offered and what they're offering now, that's a good reason to think twice before agreeing to a loan.

6. Unrealistic promises or guarantees

Legitimate lenders usually want to look at your credit and income before approving you for personal loans. A lender who says they can approve you without any kind of qualifications may be making false promises just to get your business. Or they may be offering something that isn't really an unsecured personal loan.

7. Requests for money

If you're seeking a personal loan, it's because you need money. So if a lender asks you for some kind of payment before getting a loan, that's a huge warning sign.

Unless you're getting a secured credit builder loan that uses your savings account as collateral, you shouldn't have to pay anything out of pocket for a loan.

Even if a lender charges a personal loan origination fee, that comes out of the loan proceeds. You don't pay it directly.

If a lender asks for cash or gift cards before they're willing to release loan funds to you, that's a strong sign of a scam.

8. Unreasonable repayment terms

You get a personal loan with the assumption that you'll have to repay it. But the repayment schedule shouldn't be designed to break your budget.

Similarly, just because you have a lower credit score or existing debt doesn't mean the lender should charge you interest rates in the triple digits or fees that are impossible to afford.

The best personal loan term allows you to pay back what you owe at a pace you can afford. If you're being asked to commit to repayment terms that would put a serious strain on your cash flow, look elsewhere.

Payday loans and other predatory lenders

Payday loans are often an example of unreasonable repayment. The loan fees on a payday loan can amount to an APR (annual percentage rate) of nearly 400%. That's far beyond the 36% APR that's commonly considered the cutoff for affordable lending, and higher even than subprime credit cards and loans.

Any lender charging you rates or fees well above the 36% APR threshold should be considered predatory and avoided.

9. Unnecessary add-ons

Lenders may try to pad a personal loan with a bunch of things you don't need, since that means more revenue for them. For example, a lender might tell you that you need to buy credit protection insurance as a condition of the loan.

This insurance is supposed to help you cover your payments if you lose your job. If that doesn't happen, you'll have paid extra money to the lender for nothing. Most people don't buy payment insurance for loans.

What to do if you think you've been scammed

You have rights when it comes to financial scams. If you think a lender has scammed you, act quickly and take these steps:

• Stop all contact and payments to the lender right away.

• Report the scam to the Federal Trade Commission (FTC).

• File a complaint with the Consumer Financial Protection Bureau (CFPB).

• Request your credit reports and review them for accounts or inquiries you don't recognize.

• Contact your state attorney general to report the lender.

Each step puts more control back in your hands and could help limit the damage.

Personal loan requirements: How to borrow without getting burned

A few quick checks could help you tell a trustworthy lender from a risky one. Run through these steps before you sign:

• Confirm the lender holds a license in your state, then verify it. You can use the Nationwide Multistate Licensing System.

• Check for a real physical address and working contact channels like a phone number and email.

• Read independent reviews and the lender's complaint history for repeated fee or pressure complaints.

• Compare the full terms in writing, including rate, annual percentage rate (APR), fees, and repayment length, before you sign.

Achieve Personal Loans could be a good place to start if you want a clear, human-guided process.

Your next steps toward the right personal loan

Now that you know the personal loan red flags to watch for, you can shop with more confidence and walk away from any deal that feels off.

The right lender will be upfront about rates and fees and will give you time to decide. Aim for a personal loan that fits your budget and puts your goals well within reach.

Ready to start your loan search? Prequalify through Achieve Personal Loans with no impact to your credit.