How to avoid loan fraud

We’ve all seen the headlines about fraud and how someone perfectly sensible has succumbed to the scammers. This just shows that it could happen to anyone, even if you think you’re too savvy to get caught out. 
When you’re in need of cash, even the soundest of judgements can slip. Here’s how to avoid being another victim to fraudsters. 

We’ve all seen the headlines about fraud and how someone perfectly sensible has succumbed to the scammers. This just shows that it could happen to anyone, even if you think you’re too savvy to get caught out. 
When you’re in need of cash, even the soundest of judgements can slip. Here’s how to avoid being another victim to fraudsters. 

Alex Hasty
Insurance and finance expert
minute read
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Posted 27 AUGUST 2021

What is loan fraud? 

Loan scams can involve a variety of scenarios, and for individuals the consequences can be devastating.  
Loan-fee fraud is when you’re asked to pay an upfront fee for a loan you’ll never receive. For instance, you might respond to an advert for a fast loan and see your application approved very quickly without a credit check. The loan company will tell you to pay an upfront fee of around £25-£450 to cover insurance or other costs for the loan. If it’s a scam, you’ll lose out and won’t even get your loan. You might also be asked for your bank details – and we all know where that can lead. 

Loan repayment fraud targets people who have already taken out loans. The scammers often use a fake name that’s similar to an existing loan company. They send out letters or emails claiming you’ve missed a repayment deadline and now owe your original debt, plus a penalty fee. You pay them the money, only to find out later that you still owe the full amount to the real loan company. 
Identity fraud is when your personal details, including your name, address and date of birth, are used without your knowledge to commit fraud. If a criminal gets hold of these, they could be used to take out a loan in your name. 

How much does loan fraud cost the UK? 

The overall cost of fraud in the UK is estimated to be between £130-£190 billion every year. Even though measures to prevent deception have been tightened up by banks and other financial institutions, it’s still a massive problem in the UK.  
Regarding fake loans specifically, advance-fee fraud for a loan is now one of the most common types of scam reported to the Financial Conduct Authority (FCA). 

Loan-fee fraud costs affected consumers an average of £220 each. While 66% of people say they feel confident they could spot a loan scam if they were approached by a fraudster, 28% say they would consider paying a fee first to secure a loan – even though this is one of the main warning signs of loan fraud.  

6 tips to protect yourself from fraud

There’s one golden rule: "if something sounds too good to be true, it probably is". You might think you’ll never get caught out by scammers but, chances are, at some point you will. Here are some top tips to avoid loan fraud: 

  1. Beware of upfront fees 
    Genuine brokers can charge you an upfront arrangement fee, but if you don’t take up the loan or cancel the arrangement within 14 days you should get a full refund. Be prudent of providers that ask for advance fees. Also, any lenders that guarantee approval for a loan and don’t carry out credit checks are best avoided, as they’re not likely to be legitimate. 
  2. Be cautious of initial instalments 
    If you’re asked to pay the first month’s instalment, don’t expect the loan to come anytime soon – lots of scams involve asking you to part with cash, then leave you high and dry. 
  3. Pay attention to warning signs 
    If you get texts asking you to call, or out-of-the-blue emails asking if you want a loan, then pay careful attention as it could be a scam trying to lure you to a fraudulent website. Spelling and grammar mistakes in letters and emails always sound a warning bell, but some fraudsters are getting smarter, so a fake may be perfectly written.  
  4. Check, check and check again 
    Check credentials, call the lender with an authenticated number to verify phone numbers and read customer reviews. Lenders and brokerage firms also need to be registered with the Financial Conduct Authority (FCA) and they should show their registration number on their website or paperwork. Check this number against the [FCA’s financial register] <Link to>. 
  5. Scammers are smart, so be smarter 
    Fraudsters are clever - it’s how they make money. Some will even use the name or address of genuine companies, send you phishing emails or set up fake web pages. If there’s any doubt in your mind, check addresses and if you’re on the phone, hang up and call the main telephone number of the company in question and find web addresses for yourself. 
  6. Be wary of disclosing details 
    If you’re not expecting to part with your details, then don’t. Banks will not ask you for confidential details or security information like your account numbers, password or PIN on the phone or via email. 

It’s not just elderly people who need to be on their guard against scammers. More and more younger people, who spend much of their time online, are falling victim to scams. In fact, 25 to 34-year-olds are the age group most likely to be hit by loan-fee fraud.  
For more advice on preventing fraud see Financial Fraud Action UK and Action Fraud

Latest loan scams in the UK 

Unfortunately, scam artists and fraudsters didn’t use the lockdowns to bake banana bread and do jigsaw puzzles. While the rest of us were hunkered down, unscrupulous predators used the Covid-19 pandemic to step up their efforts to deliver new scams by email, calls and text. 
It’s particularly important to be vigilant at the moment, as sophisticated new types of scam are emerging all the time. As the pandemic has seen many people struggle to make ends meet and banks more reluctant to lend, fake loan companies are ready to pounce. Fraudsters often prey on vulnerable people who have previously been denied a loan, and some of the most common scams at the moment involve clone firms imitating real companies to try to trick people into giving them their details. 
Always take a minute to stop and think before parting with your money or personal information, and never click on links or attachments in suspicious-looking emails.  

Help! I’ve been scammed, what should I do?

If the worst should happen, here’s what to do:

  • Report the incident to Action Fraud which is the UK’s national fraud and cyber crime reporting centre. They’ll be able to offer help and advice. 
  • If you’ve been asked to pay brokerage fees but there’s still no sign of a loan on the horizon within six months, you can ask for your money back. 
  • Contact the broker directly and if they aren’t helpful, contact the FCA on 0800 111 6768. 
  • Don’t get caught twice. Some fraudsters contact victims of fraud pretending to be the police or a law agency that can help you get your money back, but ask for a fee upfront. This is known as fraud recovery fraud. 

Where can I find a loan I can trust?

Whether you’re looking to borrow just a small amount of money or you’re contemplating a loan to improve your home or get a car – we can help.  
We can save you time, as we compare lots of loan providers so you don’t have to check out potential lenders separately. See more on personal loans
Before you apply, find loans you’re most likely to be accepted for with our eligibility checker. It won’t impact your credit score in any way. 
Compare the Market Limited acts as a credit broker, not a lender. To apply for a loan you must be a UK resident aged 18 or over. Credit is subject to status and eligibility. 

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