Are Personal Loans Safe? Are They Legitimate?

Navigate the safety of personal loans – spot scams, check legitimacy, and choose wisely. Discover pros, cons, and make informed decisions for a secure borrowing experience.
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Personal loans can help you when you’re in a financial bind and want to improve your overall money situation.

However, consumers need to remain vigilant when choosing a loan. Sometimes, a personal loan may not be the right choice for your situation.

Other times, a lender simply isn’t legitimate. Continue reading to learn about personal loans and how to choose the safest options.

Personal Loan Pros and Cons

No matter where you get a personal loan, there will be some benefits and drawbacks. Let’s look at the pros and cons of personal loans to get a realistic picture of what to expect when you get one.


  • You can receive your money in one lump sum payment and use the loan to help consolidate your debts and build your credit.
  • Terms can be very reasonable, so you can pay over a long period, keeping your monthly payments manageable.


  • You can cause severe damage to your credit if you’re not able to keep up with the payments.
  • You can be charged hefty penalties and fees for late or missed payments.

Which Lenders Have the Best Personal Loan Rates?

Finding the best APR could help you save hundreds or even thousands of dollars. The smartest way to know if you’re getting the best personal loan rate is to compare offers from competing lenders.

How Does a Personal Loan Work?

A personal loan is a type of installment credit that provides an upfront, lump sum payment to a borrower that can be used for various reasons — such as handling an emergency, paying off existing debts, or making large purchases.

As with credit cards, interest is accrued on personal loans, and consumers make monthly payments. Personal loans may be secured or unsecured.

Secured personal loans require that consumers have collateral to be eligible for a loan, while unsecured loans do not have this condition.

When Is a Personal Loan a Good Idea

Although you can use a personal loan for a wide range of reasons, some reasons may not be as good as others.

Generally, it’s a good idea to get a personal loan if it helps you reach a specific financial goal. For example, personal loans may be a good idea if you want to consolidate debts, particularly high-interest credit cards.

If you can get a more favorable interest rate on a personal loan, then using it to pay off other debts would be a good use of the funds.

Also, you can get a personal loan to help you with a significant purchase, such as when you need to buy new appliances for your home.

When this happens, you can save a considerable amount of money if you can get a personal loan with a lower interest rate than what you’d receive by financing from the product’s seller.

Another good use of a personal loan is to help you improve your credit score. If you’ve had challenges paying bills on time, taking out a personal loan, making all of your payments in full and on time, and paying it off promptly can go a long way toward improving your credit. As a result, a personal loan, in this case, is a good idea.

When You Should Use Caution With a Personal Loan

Every use of a personal loan is not necessarily a wise one. When paying off credit cards, a personal loan can be a great way to help you get your debts under control. However, this is only if you can keep up the payments. If you can’t, you will only trade one type of problem for another.

Also, in some cases, getting a credit card may be preferable to a personal loan. For example, if you’re dealing with an emergency like medical debt, and you can find a credit card with a 0% interest rate, that would be a much better option for handling the issue than taking out a personal loan.

How to Spot a Personal Loan Scam

Most of the loans you’ll find will be legitimate as you research lenders. However, there are still some bad actors out there that you need to be aware of. The following are some clues that indicate you may be looking at a personal loan scam.

Not Registered in Your State 

Lenders must have a license in a state to do business there. Don’t rely on the lender posting a license on their website to determine whether or not it’s registered. Be sure to check with your state to determine if any company you’re unsure about is licensed.

Lofty Guarantees

When you need money fast, finding a lender that guarantees approval may sound like the solution to your problems. However, this is a huge red flag.

Legitimate lenders have standards, and only some people who apply for a loan will be approved. When you come across a lender that guarantees a loan to anyone and everyone, the company may, at best, charge exorbitant fees and interest and, at worst, may be an outright scam.

Pressure Tactics

Deciding to sign on the dotted line of a loan offer is not something consumers should take lightly, so if a lender pressures you to act now, this is a sign of a predatory lender or a scam. Never accept a loan offer under duress. If you’re feeling pressured, you should immediately go elsewhere.

Are Personal Loans Safe?

With more people banking online, you may be considering an online personal loan. There are several benefits associated with getting a loan from an online bank, such as the convenience of not going into a brick-and-mortar location, the ability to get approved faster, and the qualification flexibility that may be afforded to you by an online bank that you may not have with a traditional one.

Despite these benefits, you may also wonder if this is a safe route. You can look at some things that indicate a lender you find on the web is safe. For example, a legitimate company will have a secure URL containing “http” or “https” in its address and encryption on the company’s website, signified by a padlock in your browser’s address bar.

Another indicator that an online personal loan company is safe to do business with is if it requires customers to set up two-factor authentication on their accounts. This added safety measure ensures that no one else can log into your account since a confirmation code is sent to your phone or e-mail address every time you attempt to access the account.

How to Check If a Personal Loan Lender Is Legit

If you’re unfamiliar with any lender, you’ll want to do your homework before applying for a personal loan. Here are some actions you can take to figure out if a personal loan lender is legitimate.

Check State Registration

As you research an organization, check with your state attorney general’s office to ensure it has been registered. When you search for a company, if it’s registered, you should be able to find its business ID number, when the organization was formed, and the state where the lender is actively doing business.

Check the Company’s Reputation 

If a company has been scamming consumers, chances are that people are talking about it online. Researching its reputation is one way to determine if a company is not legitimate. Search for reviews about an organization and find out what people are saying. In addition, the Better Business Bureau will have information on any complaints that have been made against a company.

Check the Company’s Contact Information

First and foremost, if you can find contact information about a loan company, that’s a red flag. But that doesn’t mean the information on the company’s website is legitimate either. Be sure to double-check any address and phone number that is supplied to verify its validity.

How to Choose a Personal Loan

Being a legitimate company is just a starting point when deciding where to take out a personal loan. Not every personal loan will be the right choice for every consumer, so you want to consider what works best for your specific needs. Let’s consider some things you can consider to help you choose a personal loan.

Payments and Fees 

Since you want to avoid taking out a loan that you ultimately can’t afford, calculate how much your monthly payments will be, factoring in interest and any fees. Do the payments fit comfortably into your budget? Will you be stretched too thin if you take out the loan? Ask yourself these questions as you determine which loan option is the best for you.


You can receive different perks depending on the company you get a personal loan from. Some of the benefits a lender offers may include access to a mobile app to manage your account conveniently, the ability to change your monthly payment due date, credit score monitoring, and financial education resources.

Customer Support

Just because you’re getting an online personal loan doesn’t mean a company won’t provide adequate customer service.

Check to find out how you can get in touch with someone if you need help with your loan. Some companies may have a dedicated customer service line you can call, just as you would with any traditional bank.

Other companies may only have an e-mail address. Find out how you can get the support you need and decide what level of support works best for you.

About Author
Kenya McCullum
Kenya McCullum is a freelance writer with expertise in personal finance. She writes about personal finance, education, and other topics that are important to consumers.
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