Watch Out for These Red Flags in Online Lending Apps and Independent Lenders

Applying for a loan online or through a lending app might seem attractive in the beginning. However, it has also made it easier for scammers to pull off lending fraud. Scammers take advantage of people seeking fast money because they are more likely to let their guard down.

The good thing is, you can protect yourself and ensure that you are borrowing from a legitimate source. Watch out for these online lending app and independent lender red flags:

1. No License or Accreditation

All legitimate lenders in the Philippines must be registered with the Securities and Exchange Commission (SEC). If the company has no SEC registration number or refuses to show it, that’s a major red flag. Legitimate lenders must also have a Certificate of Authority (COA) issued by the SEC to operate.

2. Immediate Upfront Payments

Be cautious if a lender demands a “processing fee” or “security deposit” before releasing your loan. Reputable banks would never require upfront payments just to process an application.

Be especially wary if the lender also pushes you into a higher down payment or a longer loan term, as this is often done to justify hidden costs. This behavior is a red flag you shouldn’t ignore.

3. No Physical Office or Verifiable Contact Information

Legitimate lenders are transparent about how you can reach them. They usually have a physical office, working landline numbers, an official website, or an email domain. Scammers often rely solely on the lending app, social media accounts, or mobile numbers that are not verifiable.

4. Excessive Interest Rates and Hidden Fees

Some online lenders charge interest rates that exceed what’s legally allowed. Add-on fees, unexplained penalties, or sudden charges can inflate your balance overnight.

5. Vague or Missing Terms and Conditions

A legitimate lender provides a clear contract that details the loan terms and conditions, including interest rates, repayment schedules, and any applicable penalties.

6. Too-Good-to-Be-True Offers

“Guaranteed approval,” regardless of your financial background, is a suspicious claim. Banks and responsible lenders always evaluate your ability to repay a loan. They do this by verifying your identity and assessing your financial profile—a process known as Know Your Customer (KYC). By using KYC, lenders can avoid risky lending that could potentially trap you in a cycle of debt.

7. High-Pressure Tactics and Sense of Urgency

A trustworthy lender respects your need to take time and ask questions. If you feel rushed or pressured to make quick decisions, it’s a red flag. Scammers use urgency to push you into agreements before you fully understand the terms.

Remember, banks and genuine lenders want you to feel confident and informed every step of the way.

8. Harassment

No one deserves to be pestered or intimidated. While lenders have the right to ask for payment, they must communicate professionally and respectfully. Scammers are quick to make demands through repeated calls, messages, or threats.

Knowing how to spot these independent lending and online lending app red flags saves you from stress, harassment, and financial loss. If you’re considering borrowing from a non-bank lender, take these steps to protect yourself:

1. Check SEC Registration and COA

The SEC website lists registered financing and lending companies. A missing or suspended license is a red flag. Always check the SEC’s official website to confirm their status before signing any agreement.

2. Read the Fine Print

A legitimate lender must be able to provide a loan agreement that outlines key details. If the contract seems vague or is missing crucial information, walk away. Shady lenders often use incomplete agreements to trap borrowers with hidden costs later. Take the time to read everything carefully — if something feels unclear, ask questions or seek advice before proceeding.

3. Check for Complaints

Before applying, do a quick background check. Search online for reviews, complaints, or even news articles about the lender. Borrowers often share experiences of harassment, hidden fees, or online lending scams in the Philippines. If you see consistent negative feedback or unresolved issues, consider it a warning.

4. Be Cautious of App Permissions

Asking for unnecessary access to your phone’s contacts, messages, or gallery is an online lending app red flag. Some predatory lenders use this data to harass borrowers or shame them publicly if they miss a payment.

Banks will only request information directly related to your application, such as income documents and identification.

5. Compare with Trusted Banks

One way to gauge if a lender is reliable is by comparing it with established banks. Banks undergo strict regulations and security checks, and their terms are transparent.

For example, regulated institutions operate with clear instructions or protocols, such as how to apply for a loan or how to open an online bank account in the Philippines. If a lender lacks these same standards of transparency and security, it's a clear sign that you should borrow from a bank instead. 

The risks of online lending fraud are real. Apps and independent companies may seem like a quick fix, but the lack of regulation leaves you vulnerable. The good news is, they are avoidable.

Banks offer the security of dealing with a well-established institution. Here’s why:

• Transparency. Banks will not hesitate to answer any questions you may have about the loan. This transparency ensures you fully understand the costs and obligations involved so you can make an informed decision.
• Regulation. Banks operate under strict supervision from the Bangko Sentral ng Pilipinas (BSP), which enforces compliance with fair lending practices and consumer protection laws. This regulation ensures that banks follow ethical lending standards that safeguard your rights and guarantee that the loan process is fair.
• Data Privacy. Your personal and financial information is protected by stringent data security measures. On the other hand, scammers might even use this information to prey on you and your loved ones.
• Fair Treatment. Banks offer sound financial advice, including the best time to apply for a loan. They focus on your best interests and never pressure you into borrowing just to meet a quota. They also offer support options such as restructuring or payment plans. Banks treat you with respect and compassion, even if you’re struggling to repay your loan.
• Variety of Options. Whether you need a personal loan, housing loan, or business financing, banks offer products tailored to your specific needs and financial status.

Borrow Smart, Borrow Safe

Spotting the red flags in online and independent loan lenders can help you avoid scams and financial setbacks. Borrowing should move you closer to your goals—not put you at risk. In the end, borrowing from a trusted bank is the best way forward.