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How to avoid loan fraud

We’ve all seen the headlines about loan fraud and how someone perfectly sensible has succumbed to the scammers. It could happen to anyone, even if you think you’re financially savvy, with money worries causing even the soundest of judgments to slip.

In this guide we’ll explain what loan fraud is, the difference between genuine and fraudulent loan providers, how to avoid becoming a victim of loan fraud, and what to do if you get caught out.

We’ve all seen the headlines about loan fraud and how someone perfectly sensible has succumbed to the scammers. It could happen to anyone, even if you think you’re financially savvy, with money worries causing even the soundest of judgments to slip.

In this guide we’ll explain what loan fraud is, the difference between genuine and fraudulent loan providers, how to avoid becoming a victim of loan fraud, and what to do if you get caught out.

Written by
Sajni Shah
Consumer expert on money and utilities
Last Updated
17 AUGUST 2023
5 min read
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What is loan fraud? 

Loan fraud can involve a variety of scenarios, and for individuals the consequences can be devastating.

Loan fee fraud

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

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

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.

Who is likely to be a victim of loan fraud?

Anyone can be a victim of loan fraud. However, fraudsters may focus on groups they perceive to be more vulnerable.


Older individuals are a target for scammers, as they are generally more likely to be isolated from others and less likely to question suspicious loan offers.

Seniors are also less likely to report fraud, perhaps because they’re embarrassed about being caught unawares. But scammers are savvy and can catch even the most discerning customer out. It’s nothing to be ashamed of.

Students and young people

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. Studies show that 20% of 16-34 year-olds have been scammed in recent years, compared to 4% of those aged 55 and over. 

Low-income households

A report from 2023 found that low-income households are being targeted by illegal money lenders (sometimes known as loan sharks), including households that may not have previously been seen as targets. This is due to the cost of living crisis, which is causing people who might not have thought about a loan before to reconsider and thus be at risk of fraud.

The same report found that 7% of those surveyed knew someone who’d borrowed from an unlicensed money lender, or had borrowed from one themselves. One reason for this could be that more people are being refused a loan from genuine providers, with 2.8 million loans being declined in the past two years.

People with low credit scores

A low credit score can make it difficult to get a loan from a genuine provider. While improving your credit score is the best way to combat this, someone who feels they need a loan quickly may be at greater risk of falling for scams by fraudulent providers.

How much does loan fraud cost the UK? 

The latest Annual Fraud Report found that UK consumers lost £1.2 billion across all fraud types in 2022. This is equivalent to over £2,300 every minute. 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 victims report an average loss of £260 each. While 66% of people 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.

How genuine loan providers operate

When trying to avoid loan fraud, it helps to know how a genuine loan provider will carry out their business so you’re more likely to notice when something isn’t quite right.

Signs a lender is legitimate:

  • Their website is secure, with a padlock sign in the address bar to indicate this.
  • They make their physical address and contact information easy to find, and getting in touch with them is a straightforward process.
  • The terms of their loans are laid out clearly. Look for:
    • How much you’re borrowing
    • Any fees, including potential penalty fees
    • The interest rate
    • How much interest you’ll pay over the duration of the loan
    • The total cost of the loan
    • When you pay
    • The payment methods you can use
  • They won’t immediately accept you – they’ll carry out a credit check to see whether you’re likely to pay a loan back fully and on time.
  • Reviews from previous customers are easy to find on the website. (A link to a legitimate third-party review site is even better.)
  • They are authorised by the FCA and listed on the Financial Services Register.

How to protect yourself from fraud

There’s one golden rule: if something sounds too good to be true, it probably is. Keep this in mind when you’re looking for a loan. You might think you’ll never get caught out by scammers, but it’s still better to be cautious. Here are some top tips to avoid loan fraud.

  1. Beware of upfront fees and guaranteed approval

    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 wary 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. Genuine brokers use credit checks to ascertain whether or not you’re a good candidate for a loan.
  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 upfront, 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 FCA and they should show their registration number on their website or paperwork. Check this number against the FCA’s financial register.
  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. If a deal seems too good to be true, then it most likely is.
  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.
  7. Keep an eye out for purchases you didn’t make, or bills for services you don’t use

    These are signs of fraud. Contact your bank if you notice them.
  8. Check your credit file on a regular basis and look for entries you don’t recognise

    If you do find something suspicious, report it to your bank as soon as possible. You can get a copy of your credit file from Equifax, Experian, TransUnion, ClearScore, and Credit Karma.
  9. Sign up for an identity protection service

    They monitor your credit report, sending you alerts if they notice suspicious activity. If you confirm that it wasn’t you, they’ll assign a fraud caseworker to help resolve the situation. Examples of identity protection services include Identity Plus and Cifas’s Protective Registration.
  10. Keep your cyber security up to date

    Cyber criminals are developing more sophisticated methods of attack, so it’s crucial to install software designed to keep them at bay and prevent them from using your details for fraudulent purposes.

    You can improve your protection by:

    - Installing anti-virus software, which protects your devices from malware

    - Installing a firewall, which prevents malicious or unnecessary traffic from getting through to your network or devices

    - Regularly updating your apps. The latest versions of apps will fix previous vulnerabilities and bugs, which makes them more secure.

    - Using different, strong passwords for all your accounts. Some cyber criminals will gain access to your personal information by trying the same password across multiple accounts, so having different passwords that are difficult to guess will make this a lot harder. Use a secure password manager so you don’t have to remember lots of complicated combinations of numbers, letters and punctuation.

    - Use two-factor authentication where you can. With two-factor authentication, you must sign in with your password and enter a code that’s sent to you (normally via text). This reduces the chances of someone who’s not you being able to access your accounts and information.
  11. Sign up to Visa Secure or MasterCard Identity Check

    These systems work by verifying that it really is you trying to make a purchase, preventing fraudulent use of your financial details.
  12. Destroy any files with your personal details on them once you no longer need them

    Never put them straight in the recycling bin – invest in a paper shredder to ensure your details can’t be pieced together. Criminals who commit identity fraud don’t need a lot of information to pretend to be you, and they can use your details to take out a loan, amongst other things.

For more advice on preventing fraud see Financial Fraud Action UK and Action Fraud.


The latest loan scams in the UK

Unfortunately, while the rest of us are grappling with the cost of living crisis, predators are using it as a springboard for their efforts to deliver a variety of loan scams, targeting those who are struggling. According to Citizens Advice, 40 million people in the UK have been targeted already this year.

Imitating genuine loan providers

It’s particularly important to be vigilant at the moment, as sophisticated new types of scam are emerging all the time. As the cost of living crisis 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.

Loan fee fraud

Another type of loan fraud that’s on the rise is loan fee fraud, which increased by 26% between 2021 and 2022. Loan fee fraud tends to peak in the summer months when spending is on the rise, as people pay for holidays, entertainment, and childcare during the school break. 21% of adults surveyed said they had used, or planned to use, a loan to cover their summer expenses.

Identity theft

Cifas reported a 34% increase in identity theft in 2022, compared to 2021, with information being stolen from online sources in 86% of cases. Identity theft is often used to make purchases, but fraudsters may also take out loans in the victim’s name.

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. 

The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.

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Sajni Shah - Consumer expert on utilities and money

Sajni is passionate about building products, allowing Compare the Market to help you make great financial decisions. She keeps track of the latest trends and evolving markets to find new ways to help you save money.

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