The most common type of loan scam out there is being asked to pay an upfront fee in order to obtain a loan that then never materialises. According to Action Fraud, the UK’s national fraud and cybercrime reporting centre, once you lose money in the scam, it becomes a loan fraud.
With so many lenders now operating online, it’s harder to tell who is legit and who isn’t. To avoid becoming a victim of loan fraud, watch out for these common loan scams and warning signs.
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Loan fee fraud
According to The Financial Conduct Authority (FCA), UK citizens lose over £3.5 million a year to loan fee scams. These scams are very simple: fraudsters reach out with a loan offer that sounds great, except that it requires an upfront fee. Once the fee is paid, the loan never materialises.
Warning signs of loan fee fraud include being pressured to say yes and pay quickly and being asked to pay in an unusual way, such as through a money transfer service like Western Union. You should also be suspicious if the offer comes from a lender you didn’t contact. The FCA warns that some legitimate lenders do charge upfront fees for their services. If you aren’t sure whether a lender is legitimate, you can always contact the FCA to see if the company is registered with them.
Other types of loan fraud
Another common type of loan fraud is connected to Universal Credit, the government system that combines six types of benefits into one payment. This includes everything from housing benefits to income support to working tax credit.
The Universal Credit scam involves fraudsters contacting benefits claimants and offering them a free government grant. Once people share their personal information, the scammers use it to apply for Universal Credit in the victim’s name and take the money.
Clone loans are also common scams. In these scams, the fraudster pretends to be somebody else, like the victim’s real bank. They make contact using letters or emails that look exactly like those of the institution they claim to represent. These fraudsters either target their victims’ personal information or offer a “loan” in exchange for an upfront fee. Of course, the loan never shows up.
There are many things you can to protect yourself from financial fraud. When offered a loan, always ask yourself ‘Is this offer too good to be true?’ If you have a poor credit score, a loan with a very low interest rate or a guaranteed loan offer out of the blue is probably not realistic.
Also, never let a lender rush you into a decision. If somebody is pressuring you into a loan contract, be suspicious. If you’re asked for an upfront fee, ask exactly what it covers and request a written explanation.
Finally, always ask the lender for the main contact details for the firm they represent. Then check the FCA register. All lenders must be registered and will appear on the FCA database. If something doesn’t add up, step away.