Concerned about illegitimate lenders?

Learn about common loan scams here so you know what to look out for and what to avoid.

Common Loan Scams and How to Avoid Them

The number of lenders and credit brokers operating solely online has been increasing in recent years. The majority of outfits are legitimate, but unfortunately this rise in online financial firms has led to many scams popping up too. In this guide we’ll be delving deeper into the issue of online loan scams and what you can do to keep safe when looking for a loan online.

In This Guide:

What kinds of loan scams are there?

This is a tricky question to answer as the crooks are constantly evolving and changing their schemes in order to steal money from honest people. Generally, fraudsters are mainly active when people are most vulnerable, so around Christmas and other dates when people may be seeking an extra bit of cash to see them through.

Loan Fee Fraud

Loan fee fraud usually involves scammers reaching out to unsuspecting victims over the internet and offering them a loan, but first requiring an upfront fee. The victim is often convinced to make numerous payments before the fraudsters run off and are never heard from again. Of course, the loan money never does come through.

Loan fee fraud warning signs:

  • A lender reaching out to you after you’ve made several online applications to other lenders
  • Being asked to pay a fee by iTunes voucher, money transfer (e.g. Western Union), or any other unconventional method
  • Being told that the fee is a refundable deposit
  • The lender not sending you a notice that includes a proper statement of how the fee was calculated. This notice should also include the firm’s legal name which you can check on the FCA register
  • Not being asked to confirm that you received or understood a notice that was sent to you

Universal Credit Scams

This scam involves crooks telling a potential victim that they can secure a government grant or payday loan for them. Once the victim reveals their details, the fraudster puts in a Universal Credit claim for an advance loan, charges the victim a ‘fee’ which is usually a large chunk of this loan, and then disappears.

Later on, the victim will get a letter regarding their application, and will realise that they now owe the Department of Work and Pensions (DWP) the full amount of the loan. This includes the ‘fee’ charged by the fraudster.

The DWP has announced new measures to combat this type of scam, including the need to see a Jobcentre staff member in person before the loan is approved. It is yet to be seen if this strategy will be effective.

Clone Firms

Clone firm scams involve fraudsters disguising themselves as another, legitimate, company in order to trick victims out of their cash. The company being mimicked is often the victim’s own bank.

These scams are often hard to identify as the scammers are quite adept at disguising themselves as the legitimate outfit - often using website clones or sending emails with the same graphics as the real company.

Ways to spot a clone firm scam:

  • Check the email address: Legitimate emails will come from the domain name of your bank. For example, if you’re with Barclays, the email address will end in ‘barclays.co.uk’. Beware though, this isn’t a foolproof way to suss out a scam, because even email addresses can be spoofed by these crooks
  • Check the website address: Make sure that the very last part of the website address (domain name) before ‘co.uk’ is the correct name of your bank. Scammers will often create a sub-domain on their website to fool you into thinking you’re on your bank’s site. This will look something like ‘barclays.wqdqdqwdqw.co.uk’

If in doubt, contact the company yourself directly. Look up their details on the FCA register, and reach out to them.

How can I spot a loan scam?

Here are a few quick tips to help you avoid becoming a victim of loan fraud:

  1. Never trust someone who reaches out to you first: Legitimate lenders will never contact you without you having contacted them first. Most people falling for loan scams are contacted by the scammer directly via text, email, phone call, or even someone at their door
  2. Ask yourself if the offer is too good to be true: Deals that seem too good to be true are used by fraudsters to attract victims into falling for their scams. Question everything.
  3. Look out for language tricks used by fraudsters: Sometimes scammers will try to make you trust them by using information about yourself to make them sound legitimate, commending a victim for being aware of security risks if they start becoming sceptical, and using high-pressure selling tactics between bouts of friendly conversation.
  4. Check the FCA register: This is an essential step to make sure everything is legitimate. All lenders must be registered with the FCA. If anything seems off about the firm who have contacted you, avoid them.
  5. Carry out some extra checks: You can never be too cautious. Check the lender’s website to see if their registration number and contact details are there. Is the text written professionally? Search the lender’s name online to see what other people are saying about the company.
  6. Be wary of upfront fees: Only a credit broker will charge any fees upfront. A direct lender does not charge upfront fees. Fraudsters will often explain their fees by citing bogus reasons such as needing insurance for the loan, needing a fee to activate the loan, or needing the fee to pay someone to set up the loan.
  7. Don’t let them rush you: One of the biggest signs that a company may be fraudulent is if they pressure you into making a hasty decision. Legitimate outfits never put pressure on people to take out a loan.

What can I do if I think I’ve been caught by a loan scam?

Unfortunately, it can be tough getting your money back if you’ve fallen victim to a loan scam.

The first step is to contact the FCA on 0800 111 6768 or reporting the fraud through their website.

You can also call Action Fraud on 0300 123 2040 to report any suspected fraudulent activity. Beware though, despite being the official channel for reporting financial fraud, Action Fraud have been exposed by the media as having been exceptionally rude to callers and having a huge backlog of reports that they haven’t processed.

What can I do if I’m looking for a cheap loan and don’t want to be scammed?

The best thing you can do is to shop around for the best loan using our online loan comparison tool. Not only do we find the very best loans for your requirements, but we only search the top providers so you can have peace of mind that whoever you deal with is a legitimate lender.