5 common loan scams and how to spot a legitimate company

Common loan scams can do quite a number on your finances and possibly even dent your credit score. Know a legitimate lender from a dodgy con artist.

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When you’re in the throes of a financial dilemma, it’s possible to fall prey to a common loan scam. These scams target those who are financially vulnerable and need a speedy solution.

During these trying times, the last thing you’d want is to get caught by an unscrupulous scammer. According to statistics, fraud costs businesses and individuals in the UK a staggering £130 billion a year. 

It’s important to be able to identify common loan scams, and equally important to know how to spot a legitimate company before giving out any personal information. 

Common loan scams

1. Advance fee fraud

Perhaps the most common of loan scams are those that require you to pay a fee before your application is processed. Legitimate institutions will never request the processing fee upfront. Instead, you should have the option to have this added to your loan amount or pay it separately after the approval and disbursement of the loan funds.

Scammers who use this ploy will contact you through phone, email, or SMS and tell you that they qualify for a loan of a certain amount. To “unlock” this loan amount, you merely need to pay an upfront fee. Once the fee is paid, the scammer disappears. 

2. Phishing and smishing loan scams

Phishing (through email) and smishing (through text) scams require you to divulge your personal information. This will include requesting income information, sensitive banking information, and other security questions that will allow the scammers access to your financial profiles.

They may also use this information to apply for loans by impersonating you and have the disbursement paid into another account. This falls into the identity theft category.

3. Universal Credit loan scams

Universal Credit provides recipients with a streamlined payment that includes all their benefits. This allows recipients to apply for finance a little more easily. For scammers, this is an opportunity to lure those who are financially vulnerable into loan scams offering financial products such as payday loans and government grants.

Fraudsters access claimants’ information through unauthorised means such as hacking, and then send them offers for loans. After applying through a bogus online application portal, claimants divulge the remaining information these fraudsters need to claim access to their benefits. 

4. Clone firms

Dealing with a clone firm might seem like dealing with the real thing. These companies either impersonate a legitimate company or pretend to be the legitimate company’s agent. As a common loan scam, this one seeks to obtain as much personal information from you as possible to commit fraud or to solicit upfront fees. 

Consumers should be wary of letters, text messages, or emails from companies encouraging them to apply for finance. 

5. Homebuying fraud

If you’re looking to buy a new home, you need to ensure that you’re dealing with legitimate agencies. Homebuying fraud occurs when homebuyers unknowingly pay their deposit to a phony account. While initial email communications might have been between the homebuyer and the actual solicitor, email interception can result in fraudsters getting all the information they need to divert the deposit payment into their own account. 

This is a tough scam to detect, and homebuyers should also be wary of unexpected emails advising last-minute changes to banking details. 

How to tell legitimate lenders from common loan scams 

They’re listed with the FCA 

In the UK, consumers are protected from unscrupulous financial institutions by the Financial Conduct Authority (FCA). Companies that render financial services need to be listed with them. If the company offering you a loan isn’t, you might just step into a common loan scam. You can confirm that the lender is registered with the FCA by accessing the list of authorised financial institutions on their website. 

The institution is easy to contact 

A quick way to determine whether the lender you’re dealing with is legitimate is by using their listed contact numbers to give them a call. This means doing a quick online search. It’s important that the lender has its own registered domain, with listed contact numbers.

While some banks are slowly moving away from the branch-based approach, there should at least be a head office with a registered address. If the lender approached you with a loan offer, it’s best to verify this directly with the institution. Use the contact details online to do this. 

Marketing seems professional 

While a website is one form of confirmation that a business is operational, it’s not enough. Check to see whether the content on the site looks professional. Grammatical errors, typos, and poorly executed content should trigger those warning bells.

Also, legitimate lenders invest a lot of money on branding and corporate image. Cheap and flimsy pamphlets and flyers should warrant further investigation as they might be common indicators of loan scams.

Legitimate lenders are reluctant to compromise brand image for the sake of a smaller marketing bill. Branding across all platforms and communication to clients will be the same. 

They take pride in their reviews 

A bad review doesn’t necessarily point to fraudsters, but reviews offer great perspective. It only takes a few minutes to check out reviews on a lender, especially if it is a company you’ve never heard of or dealt with before.

Be on the lookout for reviews where disbursements never took place. Another warning sign to look out for is reviews highlighting an inability to get hold of consultants in the event of a complaint. 

Protect yourself

You can never be too careful when it comes to sharing your details online. For more advice on keeping your money safe, check out our article on protecting yourself from common financial fraud.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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