Financing higher education is a significant investment, and for many, an education loan is the bridge to a brighter future. However, as the demand for student financing has surged, so too have the risks of falling prey to education loan scams.
In recent years, cases of fraud have skyrocketed, with one notable instance seeing the CEO of a Bengaluru-based loan assistance firm arrested for cheating nearly 2,000 students out of ₹18 crore.
This blog will walk you through the warning signs of such scams and share practical ways to stay protected.
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Types of Education Loan Scams You Should Know
Scammers are cunning and constantly adapt their methods. Recognising the different types of education scams in India is your first line of defence.
1. The Upfront Fee Scam
This is one of the most prevalent scams. Fraudulent companies or individuals will promise you a guaranteed loan approval, but only after you pay an "upfront fee" for processing, verification, or insurance. Once you make the payment, they vanish, and the loan never materialises.
Legitimate lenders, like banks and reputable NBFCs like Propelld, will never ask for a fee before the loan is sanctioned and disbursed.
2. Guaranteed Approval Scams
Be wary of any company that guarantees you a loan regardless of your credit score, academic record, or financial situation. No genuine lender can make such a promise without a thorough verification process. These offers are designed to lure in desperate borrowers.
3. Phishing and Identity Theft
Scammers will often create fake websites or send out emails and SMS messages that mimic legitimate banks. They'll ask you to provide sensitive personal and financial information, such as your Aadhaar, PAN card, and bank details, under the pretext of 'loan verification'. This information is then used to commit identity theft or other financial fraud.
4. Fake Scholarship Loan Scam
A scammer will contact you with the exciting news that you've won a scholarship or grant you never applied for. The catch is that you must pay a "processing fee," "tax," or "redemption fee" to receive the money. In reality, there is no scholarship, and your money is gone.
5. Fake Loan Apps
The rise of digital lending has led to a boom in fraudulent loan apps. These apps often offer "instant loans with no documents" but secretly access your contacts, gallery, and messages. They may then use this data to harass you and your family if you fail to meet their exorbitant repayment demands.6.
6. Student Debt Relief Scams
These student debt relief companies target borrowers who are already struggling with loan repayments. They promise to reduce or eliminate your debt for a fee, claiming to have a "special connection" or "new government programme." In reality, they simply take your money and do nothing, leaving you with your original debt and a tarnished credit score.
Don't fall for fake promises. To get a genuine loan, understanding what lenders look for is key. Our guide on Education Loan Eligibility: Top Lenders, Interest Rates & How to Apply can help.
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How to Spot a Fake Loan Company?
Spotting a fake lender requires attention to detail. Here are some red flags that should immediately raise your suspicion
Demands for Upfront Payment
A genuine lender will deduct processing fees from the sanctioned loan amount, not demand them upfront. Any request for cash, a wire transfer, or a digital payment before the loan is approved is a major sign of fraud.
Unrealistic Promises
Be cautious of schemes that promise unusually low interest rates or instant debt relief. Genuine lenders always conduct proper checks, and no one can guarantee approval without due diligence.
Lack of Credibility
Check for the company's registration. Is it a registered Non-Banking Financial Company (NBFC) with the Reserve Bank of India (RBI)? Does it have a verifiable physical address and a professional website with an "https://" URL? Fake loan companies in India often lack these basic credentials.
Pressure Tactics
Scammers always create a false sense of urgency, pressuring you to act immediately or risk losing a "limited-time offer." They don't give you time to think, research, or read the fine print.
Unsolicited Communication
Be wary of unsolicited calls, emails, or SMS messages offering you loans. Legitimate lenders rarely reach out to potential borrowers in this manner.
Learn to increase your credit score to get the best loan offers from verified lenders. Read our blog on How to increase CIBIL score - 10 Easy Tips to get started.
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Education Loan Scams: Real Student Experience from Reddit
Reddit User in r/India shared:
"Loan scammers are threatening me for a loan I never even took. They keep calling and sending intimidating messages, saying they’ll harm my credit score and even contact my family if I don’t pay up. I’m extremely stressed and don’t know how to stop this harassment. I need genuine advice."
Insight:
This shows how fake loan companies in India use threats and harassment as pressure tactics, even when the borrower hasn’t taken a loan. These scams often start with leaked personal data from unsafe apps or websites.
What Do We Infer?
- Many scammers don’t even provide a legitimate loan; harassment itself becomes their scam tactic.
- Sharing documents or phone numbers on unverified platforms increases the risk of such fraud.
- Students facing this issue should immediately report to the National Cyber Crime Portal (cybercrime.gov.in) and alert their bank.
Tip:
If you get scam calls, never engage or share details. Block the numbers, keep a record of messages, and file a cybercrime complaint. Most importantly, apply only through verified bank/NBFC websites or trusted partners like Propelld.
Tips to Stay Safe from Education Loan Scams
Protecting yourself from an education loan scam requires diligence and a proactive approach. Here's how you can stay safe:
Verify the Lender's Credibility
Before sharing any personal information or making a payment, confirm that the lender is a genuine and regulated entity. Check if the company is registered as a bank or a Non-Banking Financial Company (NBFC) with the RBI. You can verify this on the RBI's official website.
Never Pay an Upfront Fee
This is the most crucial rule. Legitimate lenders deduct processing fees from the sanctioned loan amount. They will never ask for a payment for "verification," "processing," or "insurance" before the loan is approved and disbursed.
Be Cautious of Unsolicited Offers
Avoid clicking on links or providing information from unsolicited calls, emails, or messages. Be especially wary of offers that seem too good to be true, such as extremely low-interest rates or guaranteed approval without a proper credit check.
Safeguard Your Personal Information
Never share sensitive details like your Aadhaar number, PAN, bank account details, or One-Time Passwords (OTPs) with anyone over the phone or through unverified websites. Legitimate lenders will only ask for such information through secure, official channels.
Monitor Your Financial Accounts
Keep an eye on your bank statements and credit reports from time to time. It’s the easiest way to spot any suspicious activity or loans taken in your name. If you notice something unusual, report it right away to your bank and the credit bureau.
Trust Official Channels
If you're looking for an education loan, apply directly through the official websites of well-known banks and financial institutions or their verified partners. Avoid third-party websites that promise a "quick loan" or debt relief for a fee.
The journey to higher education should be one of excitement, not anxiety. By staying informed and vigilant, you can navigate the financial landscape safely and confidently. The key is to remember that genuine opportunities for an education loan come from transparent, regulated financial institutions. Any offer that sounds too good to be true, demands upfront payment, or pressures you to act quickly is likely a scam designed to exploit your ambition.
For a transparent and secure way to finance your education, consider exploring options from verified and regulated financial institutions.
Propelld has you covered with personalised education loans that fit your unique needs. Propelld offers fast digital approvals, study loans of up to ₹50 lakhs, and the ease of zero-collateral requirements.
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