When you think about gift cards, what is the first thought that comes to mind? Maybe you received one from a close friend on your birthday and it gave you the option to buy anything you want from your favorite store. Or maybe, you gave a gift card to a loved one recently to help them celebrate a milestone in their life.
Whatever it may be, we can certainly agree that gift cards can be exchanged as presents to commemorate special events or to let our family or friends know how much they mean to us, no matter the occasion.
But what happens if they’re misused? Unfortunately, it has become more and more common for scammers to use gift cards to their advantage.
Gift card scams may occur more frequently than you would think. Since they work just like cash, they hold a lot of value that can easily be accessed and used. One reason scammers prefer to leverage gift cards is because the cards are hard to trace so it’s unlikely you will be able to recover any money you lose through fraud on a gift card. Once the value of the gift cards are transferred, it’s most likely your money is gone forever.
Fortunately, there are some steps that you can take to avoid getting caught up in a situation like this. Let’s focus on some common methods a scammer might use to try to take money from you. We’ll highlight some important things to keep in mind to help you be on the alert and keep your finances safe.
How do Gift Card Scams Work?
While there are multiple ways through which scammers can attempt to take money from you, this article will focus on how gift card scams work in the world of online loans.
Sometimes in life, you come across situations that catch you off guard. Maybe you need to pay for an emergency medical expense, or maybe you need some extra funds to get your car fixed as soon as possible, so you can get to work and continue to make money. In times like these, or in times when you can’t rely on your savings to cover your unforeseen expenses, you may resort to online loans. This could be in the form of online installment loans, personal lines of credit, or another type of loan.
While online loans from a legitimate company can offer a lot of convenience and temporary relief, there are things that you need to look out for.
When considering applying for an online loan, have you ever come across something that is too good to be true? Maybe you were asked to pay a small amount (likely via a gift card) as a guarantee in order to get a loan for a much higher amount. Or maybe, you were asked to pay a small fee so that your credit score could be “improved”, in order for you to get “approved” for the said loan.
Well, these are all signs of a scam!
Let’s take a look at this in a bit more detail.
Gift Card Scams Example
What if someone told you that you could qualify for a loan, a loan that could not only help you get through your financial emergency, but may even help you fund a project around the house which you’ve been desperately trying to save up for? What if this loan was for around $8,000 or even $10,000? And what if you were promised that it could be yours if you paid a “small fee”, say in the amount of $400 with a gift card?
This fee could be labelled by the scammer as a “conditional” fee. If you pay the amount that the “loan company” is asking for, you can consider yourself “approved” for the loan amount that you desire. To make this claim sound reasonable, the scammer may inform you that the initial amount would be reimbursed by increasing the total amount of funds that are being lent to you. By asking you to pay a fee in order to get approved, the scammer is attempting to trick you into thinking you’re getting a good deal.
They might also call this fee a “loan processing” or “registration” fee. In these cases, the said company would ask you to first pay an upfront amount so that your application could be put through the alleged underwriting system for reviewing so that it can either be “approved" or “rejected”.
In some cases, you may even be promised that by paying the initial fee, your credit score would be increased just so you can get approved for the loan in question. Let’s admit it, when we’ve been hit with some financial struggles in our past and our credit score isn’t as high as we would want it to be, it can certainly be tempting to take up this offer, isn’t it? What could possibly go wrong when all you intend to do is get a better credit score?
Well, a lot! These are all examples of how you could run into gift card scams.
Common Signs of Gift Card Scams
Often, a scammer who is pretending to be a representative may get a hold of you via phone. Their goal is to create a sense of urgency so you don’t have enough time to think thoroughly about your decision and review their offer carefully. Under the guise of providing good customer service, they’re likely to insist on staying on the phone while you go to your nearest store to purchase the gift card to ensure you make the purchase. Once you buy the gift card, the scammer would ask you to provide them with the card number and the security code so they can wipe out the card.[1]
As soon as you hear words like “conditional fee” from a representative of a “loan company”, hang up! That company is likely not legitimate and is simply after your money.
What do you think would happen once you pay any of the abovementioned fees? It’s almost guaranteed you won’t receive the loan that you initially paid for and you would be out whatever amount you paid! The scammer would have pocketed your money, and if you ever try to follow up or try to reach out to them again, chances are that you wouldn’t be able to get a hold of them and you’d have to wave goodbye to your hard-earned cash.
How to Ensure that You’re Getting a Loan from a Legitimate Company
Now that we’ve answered the question of “how do gift card scams work”, let’s take a look at what cautionary steps you can take to protect yourself.
Luckily, there are some warning signs that should help to point out whether a loan company is a scam. As mentioned above, asking for a payment via a gift card is a clear sign of gift card scams, but here are a few others.
1. Unprofessional Customer Service
If you’re ever on a call with an agent and feel pressured or harassed by them to send them money in order to borrow funds from them, chances are that you are speaking to a scammer. No legitimate loan company would rush you into making your decision. In fact, here at MoneyKey, we encourage all our applicants to read their loan agreements thoroughly in order to understand the terms and conditions of the loan before accepting it.
2. Contradictory Loan Information
Were you told on the phone that you were approved for $8,000 but when you sign your loan agreement, you discover that the loan is actually only for $6,000? Or perhaps the subject line of an email states that you will receive a loan for $7,000 yet the contents of the email indicate the loan amount is $10,000. Confusing, right? Well, this type of inconsistency can definitely be a sign of a scam that you’d want to look into. Yes, legitimate loan companies may make you an email offer for a loan amount which may then change after your financial information has been verified. However, you’ll be informed and updated at every step of the way. No authentic loan company would change the amount of a loan that you’re approved for without providing you with an explanation during the application process. This is why it’s very important that you pay attention to the information you’re receiving and make sure it all adds up.
3. Discrepancies in Company Information
In order to gain your trust, the scammers could very well be using either the name of a legitimate loan company or a very similar name. This way, they trick you into thinking that they’re a legal business and that you’ll actually receive a loan from them.
Before you give out your personal information though, how do you know that the email you received is from an actual agent who works at a legitimate company?
Firstly, be sure to look at their email address. If they’re using a generic email address from a common email service provider and not an official company branded one, chances are, you’re communicating with a scammer!
Is there a phone number in that email? Why not look it up? Does it match with the so-called company name, or is it just a private number? Is it even a functional phone number? There are also websites that rank the legitimacy of phone numbers that may help you identify the likelihood that you’re being contacted by a fraudulent company.
In addition, and very importantly, always look up the company which the scammer is pretending to be from. Browse their website and see if the company is licensed to operate in your state of residence. Why not reach out to them directly to learn more about their loan application procedures to ensure that whatever steps you’re following are legitimate?
If you ever need some pointers on what type of questions you should be asking, check out this article. It may help you get started.
Avoiding Gift Card Scams
It’s very, very important to remember that legitimate loan companies are unlikely to ask you to pay any kind of fees before your loan has been funded. If you’re approved for a loan, you should only have to pay the loan back along with any applicable charges after you’ve been funded the loan as your payments come due.
Sometimes, no matter how hard we try to avoid it, we can become victims to such gift card scams. If you are ever in such a situation, be sure to call the gift card company immediately. Depending on multiple factors, including when you call, they may be able to do something about it. Make sure you contact the local authorities and report the gift card scam to the Federal Trade Commission.[2] You can also submit a complaint through the Internet Crime Complaint Center.[3]
As always, be on the lookout and make sure to do your research before accepting a loan from any loan company.
It’s also important to remember that you should only consider applying for a loan when you really need it, which is when you face an unforeseen situation and have no other way to pay for it. In these instances, you might want to consider looking into online emergency loans.
To learn about the products and services offered through MoneyKey, visit our website or contact us to find out more.
[1] https://www.consumer.ftc.gov/articles/paying-scammers-gift-cards
