How to avoid loan scams

• Advance loan fee scams
• Unregistered lenders
• Unsolicited loan offers
• Guaranteed approval loans
• Clone firms
• Loan repayment fraud
• Identity fraud
• What to do if you’ve been scammed

According to some reports, the total cost of fraud doubled to £2.3bn in 2023 in the UK with millions of cases. It’s always worth being cautious when giving personal details and even more careful when parting with card or bank account details. One potential way this can happen is when applying for a personal loan or other similar forms of credit.

Advance loan fee scams

Advance loan fee or loan fee fraud happens when someone is tricked into paying a fee to get a loan or to “release a loan”. Scammers may say the payment covers an administrative fee to process the loan application, insurance fees, verification fees, or other made-up loan costs. They may target you if you've applied for loans online and contact you unexpectedly.

Scammers may insist that the loan money will be transferred to you once you've paid, and the fee is refundable. They may pressure you to pay the fee quickly via a bank transfer. They may even ask you to buy vouchers, for example, from Amazon or eBay, or request payment via crypto exchanges or PayPal.

Once you pay the advance loan fee, you never receive the personal loan, and you’re left out of pocket. According to the Lloyds Banking Group, loan fee scams more than doubled between 2022 and 2023, and cases continue to rise sharply. On average, victims lost £214 in 2022 to loan fee scams. 

When applying for a loan, including a personal loan or a short-term loan, an authorised direct lender will not ask for an upfront fee before providing you with a loan. Nor will a lender tell you you’re guaranteed a quick loan in exchange for a fee.

It is worth noting that you may be asked to pay an upfront fee when you apply for your loan through an authorised credit broker but never through a direct lender. In such a case, the broker will send you a notice with clear information about how and when you need to pay and their FCA register details. Before you get the loan, you need to respond to the notice saying you understand and agree with it.

There should be zero pressure and no odd payment requests. You should always be able to verify their details on the FCA Register - more on this next.

If you’re pressured to pay an advance loan fee to get money paid to your account, it's likely a scam.

Unregistered lenders

In the UK, all lenders and credit brokers must be licensed and authorised by the Financial Conduct Authority (FCA). If a lender or broker is not registered with the FCA, they operate illegally.

Never use an unauthorised lender or broker. You can check a lender’s contact details and information and if they are approved on the FCA’s register.

If you get an offer or communication from a lender and credit broker that is not on the FCAs Register, it's likely a scam.

Unsolicited loan offers

An unexpected communication, such as an email or an online pop-up with an irresistible offer, can be one of many telltale signs of an online scam. Be wary of any unsolicited calls or messages offering you a loan. Reputable lenders and companies do not send unsolicited communications.

Authorised lenders must also lend responsibly. This means checking thoroughly to ensure you can afford the loan and performing all necessary checks. Lenders authorised by the FCA will not use shortcuts, quick-win methods, or high-pressure tactics to push you into making a fast decision.

If you receive unexpected communication from a source you do not recognise with an irresistible offer, it's likely a scam.

Guaranteed approval loans

No legitimate UK lender can guarantee loan approval without first performing all the necessary checks to ensure the monthly payments are manageable and realistic. Lenders must perform affordability checks, including looking at sources such as your credit history and financial situation.

Be wary of adverts and offers of quick, easy loans, such as no-credit-check loans and especially guaranteed acceptance loans. Scammers use these to lure in desperate borrowers and steal information and money.

If you’re told you're guaranteed a loan without any checks, it's likely a scam.

Clone firms

Fraudsters may try to pretend to be recognised and legitimate lenders. They may do this by cloning a website to capture your information or request a fee, a technique called pharming. Similarly, there is phishing, where scammers use email to impersonate a company and smishing, which are fake SMSs or text messages.

While scammers go to great lengths to look "real", there are things you can look for. For example, check for obvious spelling and grammar mistakes. Also, check that the website address, email, and phone number match the FCA Register details. Ensure the website address starts with ‘https’ and not ‘http’ (the ‘s’ in ‘https’ stands for secure). We explain more in our guide, Common Types of Online Scams.

Never enter your information or bank details unless you are absolutely certain you are dealing with a legitimate broker or lender. The same applies to calls. If you are not certain, hang up, look for the company online, and call the main telephone number to see if it’s legit.

If a website, email or SMS look suspicious or odd, do not proceed.

Loan repayment fraud

Loan repayment scams target people who may have taken out loans. Fraudsters may pretend to be a loan provider and contact you to request an overdue payment. They can do this by sending letters or emails. There may even be threats of penalty charges or court action.

Never make any payments or respond without checking the original paperwork, including repayment dates, and check your bank account to see if payments have been missed. Finally, contact the lender directly to double-check the status of your loan payments and recent communication and inform them of any suspicious activity.

If you receive a late or overdue payment notice and know you are not late, do not proceed. Instead, contact the lender directly.

Identity fraud

Identity fraud happens when criminals obtain your personal information—such as your name, address, and date of birth—and use it to commit fraud. Fraudsters may try to open bank accounts and obtain credit cards and loans in your name, leaving you to pay off the debt.

You may be a victim if you receive bills or invoices for things you haven’t ordered or bought or notices and letters from debt collectors for debts that aren’t yours. Multiple credit checks on your credit report could indicate identity theft. If you do not remember applying for credit, these can be attempts by someone else to take out credit in your name.

You may be an identity fraud victim if you do not recognise credit applications on your credit report or payments on your bank statement.

What to do if you’ve been scammed

If you suspect you have fallen victim to a loan scam, take the following steps immediately:

1. Contact your bank or credit card provider about the scam. They may be able to stop transactions and help protect your accounts.
2. Report it to Action Fraud online or by calling 0300 1232040. Provide as much information as possible to help authorities investigate the matter.
3. Get your credit report and monitor for any unusual activity. You can get a free copy of your credit report from the main credit reference agencies, such as Experian, Equifax, and TransUnion. Also, keep an eye on your bank statement, checking money going out, payments, and Direct Debits.
4. Change passwords for any online accounts that may have been compromised. Use strong, unique passwords for each account.

In conclusion

Whether you’re considering applying for a personal loan or getting a short term loan, loan scams are real. Remember, it’s likely a loan scam and do not proceed if:

• You’re told to pay an advance fee on a loan to get money paid to your account
• You receive unexpected communication from a source you do not recognise with an irresistible offer
• You’re told you're guaranteed a loan without any proper checks
• The lender or credit broker is not on the FCA Register
• The website, email or SMS look suspicious or odd
• You receive a late or overdue payment notice and know you are not late

You should never feel pressured or told to act immediately to borrow money, and you should avoid unsolicited communications. Keep an eye on payments and bills, and check credit applications on your credit report.

Finally, if you use comparison sites to compare loans, make sure the FCA also authorises these. All lenders on MustCompare have been checked and verified and are licensed to operate in the UK.

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