Personal Loan Frauds on the Rise in 2025 – How to Identify & Avoid Scams

Rajiv Sharma is an IT employee based in Mumbai who earns 50,000 monthly. Who desperately wanted money for some emergency? While scrolling through social media, I came across an ad that said, "Instant Loans, No Paperwork." It seemed authentic even though it needed to be applied for. Minutes later, he got a text that said, “Approved.”

After that, he had to send a "processing fee" of Rs 5,000 to claim the loan. He made that payment but soon found out the lender vanished. Rajiv did not get any loans or the amount left with him.These scams are proliferating rapidly as of 2025. Hustlers are shrewdly draining money from their victims on the web.

What Causes the Surge in Loan Scams in the Year 2025?

Personal loans and borrowings within India slowed down to 14.2% as of January 24, 2025, as against 18.2% a year previously, as mentioned in the Times of India. Crime-inflation just has to be high. The cases of high-value cyber fraud multiplied four times fiscal 2024 and caused a loss to the tune of ₹166 crore, Business & Finance News India 9.

In 2025, losses are estimated to be scaled by cybercrime to an alarming rate of 20,000 crore, and the banking sector would become victimized for ₹8,200 crore in India today.  Lending norms have driven the borrowers to other sources of financing, leaving them sometimes being victims of loan sharks, Reuters. Furthermore, limited financial literacy and the proliferation of fake loan apps and other scamming schemes have drawn individuals more to scams Reuters.
 

How Do Loan Scams Take Place?

There are different kinds of tricks that the scammers do, like:

Loan Fraud Statistics

Note: The figures for 2023 and 2024 are based on the first half of the respective fiscal years.

Moreover, such high-value cyber frauds in India have quadrupled during the financial year 2024 with losses of around $20 million (roughly ₹164 crore).

For example, suppose Ravi needed a loan of ₹50,000. He found a site that approved loans in minutes. It asked him to pay an amount of ₹1,000 as a 'processing fee.'  But he never got the loan; his details were written down, and a loan of ₹2,000,00 was obtained in his name. One must also check whether the loan provider is registered with RBI and avoid sharing OTP or personal details with unknown people.

The Following Are Some of the Most Common Loan Scams in 2025

1. Phoney Loan Offers: These scammers have made themselves super lenders, charging ridiculously low interest rates (2% per year). They charge a processing fee (Rs. 5000-Rs. 10000) and do not provide any loan after collecting that money.

For example, Meera sought an online loan of Rs 2 lakh. A processing fee of Rs 7,500 was to be paid before the loan could be approved. After paying, the lender never responded again. She lost her money but is without any loans.

2. Phishing: Fraudsters develop fake bank websites and send emails or messages pretending to be one. They then ask for Aadhaar, PAN, and bank account details from the people. Once they sync this information, the money is drained from the bank accounts.

For example, Ramesh receives an SMS stating that his loan is approved and contains the link to update his KYC details. While doing so,₹50,000 is deducted without his knowledge. We call this phishing, where fraudsters develop fake bank websites and send emails or messages pretending to be your banks. 

3. Bogus Loan Applications: Some applications promise quick loans while misusing your data, such as accessing your photos, contacts, and messages. Most of the applications charge very high interest rates.

For example, Suman took a loan of ₹ 10,000 from an app and within a month, the app demanded ₹ 30,000, threatening to send a message to all her contacts by pretending to be her.

What are the signs of a loan scam? 

Fake Loan Offers: Unrealistically low-interest, Demand advance payment

Phishing Scams: E-mails/SMS come from unknown people and have some suspicious attachments. 

Fake Loan App:  Bad user ratings, Too many permission requests 

Stay Safe: You have to pick lenders who are recognized by the RBI, do not share personal details online, and do not pay upfront for a loan.

What to do if you think it was a scam? 

If you suspect that you have fallen prey to deceitful lending schemes, here are a few actions to undertake as soon as possible, in no specific order

• Stop communication with the scammer:  do not open any emails or further messages from him, and do not make additional payments.
  
  
• Take an effort to secure your information: If you have given the scammer your social security number or other information that can be used for identity theft, refer to IdentityTheft.gov for further steps.
  
  
• Notify the authorities about the company: digitally collate every detail and piece of evidence in the case and report through the Federal Trade Commission (FTC), the Consumer Finance Protection Bureau (CFPB), or the local police.
  
  
• Try to seek restitution: If a payment was sent to the scammer, contact the bank or company that sent the money and inquire about any possible refunds.

• Monitor your accounts: Look for illegal activity and unauthorized transactions in your financial accounts. Monitor your accounts regularly and consider placing an alert for fraud.
  
  
• Keep a check on your credit report: Your bank can provide free copies of your credit reports. If you feel it is wise, consider putting a credit freeze in place. 

What are the Preventive Measures you can take to Safeguard Against Loan Fraud? 

While loan fraud has become a significant issue today, some preventive steps could provide for the safety of finances.

1. Designing A Financial Safety Checklist

Before you go on with a loan application, make sure that

• The RBI or SEBI lists the lender. 
• You have checked your credit score with CIBIL or Experian. 
• The terms of the loan are read with care. 
• No upfront payment is required for loan disbursement.  

2. Use Verified Loan Comparison Websites

Avoid unsolicited loan offers and use government-authorized websites or platforms such as PaisaBazaar or BankBazaar to compare interest rates, lenders' reputations, and links to secure applications.

3. Place Fraud Alerts on Credit Accounts

Forward fraud alerts to CIBIL, Experian, or Equifax. Activate SMS/email notifications for doubtful activities and monitor the yearly credit report.

4. Check the lenders thoroughly

Verification of the lender's lender procedure:

5. Use Cyber Security Tools

To protect financial data, antivirus, VPN on public Wi-Fi, and two-factor authentication (2FA) should be used; never give or share OTPs or bank details over calls or emails.

For example, Scam Risk 

A borrowing individual applies for an ₹8 lakh loan from an unidentified online lender. The lender then asks for an advance payment of the ₹20,000 processing fee. Once the payment has been made, the lender disappears, the victim loses money, and there is also a potential threat of identity theft. Prevention can help to avert such scams.

“Loan fraud affects the financial industry in India on a broad front. Thus, it is imperative to ascertain what legal remedies are open to such victims.” 

New Developments Regarding Loan Fraud Penalties in the Regulation

In December 2024, the proposed draft bill presented by the Indian government was exceptionally hard on unregulated lending, including digital lending platforms. Some provisions were:

Unauthorized Lending: Conducting lending business without Reserve Bank of India (RBI) authorisation could result in imprisonment for up to 7 years and penalties of up to ₹1 crore. 

Harassment in Recovery: Taking wrongful means towards recovery of loans would lead to imprisonment for a term extending to ten years with penalties equivalent to twice the amount of the loan recovered. 

False Claims: Inducing loan applications with misleading statements can suffice for imprisonment of up to five years and a fine of up to ₹10 lakh. 

Formal Complaint Filing with Banking Regulators

They may take the following steps against loan fraud:

National Cyber Crime Reporting Portal: File such cases of financial fraud and scams online or any unauthorized transaction through this online portal.

Cyber Crime Helpline: To report cybercrimes, including financial fraud, use the national helpline number 1930.

Banking Ombudsman: The RBI's Banking Ombudsman accepts complaints against banks by filling out an online complaint form.

The Financial Intelligence Unit-India (FIU-IND): Typically, complaints must be submitted with complete personal details, as they cannot be anonymous.

Rights of a Victim in Loan Fraud

Fair Investigations: Ensures receiving complaints for impartially probing investigations.

Compensation: Seek restitution due to monetary losses arising from borrowing.

Privacy Protection: Personal data may also be covered during investigations.

Time Frame Involved in Legal Proceedings for Loan Fraud

The time consumed in the legal proceedings would depend on each case's complications and the applicable legal jurisdiction. A standard flow of time is given below:

Note: These are standard timelines; actual timelines can differ. 

Prominent Cases of Loan Fraud in 2025

PNB Loan Scam: In February 2025, the Mumbai Court auctioned the assets of Mehul Choksi and Nirav Modi, the prime accused in the ₹13,000 crore Punjab National Bank scam. 

New India Co-operative Bank Fraud Case: In February 2025, the Mumbai police registered a case against a bank manager revealing ₹122 crore fraud, indicating heightened awareness of banking frauds.

These developments reinforce the need for adherence to regulations and the legal options available to loan fraud victims.

Final thoughts 

Loan fraud in India is a growing threat in 2025, and cases have jumped by 38% compared to last year. Scammers today use tactics such as fake loan offers, phishing, or even deepfake technology to rob people. 

To be safe, borrowers must check lenders through RBI, avoid making upfront payments, and use verified loan comparison platforms. The legal framework is getting stronger, with stringent punishments for unauthorized  lending and acts of fraud. 

If defrauded, the victim must report it immediately to the National Cyber Crime Portal and Banking Ombudsman. Setting up fraud alerts and implementing anti-cybercrime tips are the two best preventive measures that can be considered. 

With all the information and legal support available today, individuals can safeguard themselves against loan fraud.

FAQs

1. How can I verify if a lender is legitimate?

Be sure to check for the lender's RBI, SEBI, or NBFC directory registration.

2. What should I do if I get scammed?

Report the fraud to the National Cyber Crime Portal (1930) and file a complaint with the Banking Ombudsman under RBI.

3. Are processing fees always a scam?

A bona fide lender may charge fees, but the fees will be deducted from the loan amount rather than requested to be paid up front.

4. How do phishing loan scams work?

Old-style fraudsters create phony websites and send phishing messages impersonating banks to fleece their victims of personal information. 

5. Will I be able to get my money back after being scammed?

Once a transaction gets unauthorized, if the bank is informed quickly, it may reverse the transaction; however, it is not guaranteed that recovery will be possible.

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About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?