We’ve all seen the headlines about loan fraud and how someone sensible has succumbed to 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.
Scammers and con artists have the ability to mislead anyone. But it’s not all doom and gloom. Recognising and understanding the potential signs of loan fraud is the most powerful tool in preventing it.
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.
What is loan fraud?
Loan fraud is the term given to the falsifying or misrepresentation of information when it comes to borrowing large sums of money. This could see someone steal your identity to take out a loan in your name, or ask for an upfront fee to be paid in order to receive your loan (which you never receive).
Loan fraud can involve a variety of scenarios, and for individuals the consequences can be devastating. Here are some of the most common to watch out for.
Advance fee loan 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 will usually lose the money you’ve paid and won’t get the loan. Just remember that when applying for a loan, in most cases you will be asked for your bank details in order to deposit the loan and also set up a direct debit.
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.
Phishing and identity theft loan 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. A lot of the time, scammers get this information through phishing techniques. This sees them reaching out to you with emails or text messages, prompting you to click a link and fill out personal information.
The messages containing these links have become a lot more refined and official-looking as time has gone on. If in doubt do not open anything within the email and check directly with the company in question - via its official website - before you proceed.
The most common loan fraud scams right now
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. In order to combat this ongoing threat to the average person’s pockets, it’s important for everyone to understand what a loan fraud scheme might look like.
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.
Debt consolidation scams
For some people, debt can feel neverending. When they’re presented with a solution to their woes it’s all too easy to grasp at it without taking the time to properly mull it over. While plenty of legitimate companies do exist to help with this, others will exploit that desperation to their own end. If you’re ever asked for money ahead of time, or told not to speak to your creditors about the loan, there’s a good chance you’re being targeted.
Student loan fraud
This kind of fraud happens in one of two ways. Sometimes, it’s as simple as a scammer taking out a fraudulent student loan in your name. The other type sees a con artist contacting you to discuss a modification, consolidation, or even forgiveness of your existing student loan amount. Never take these offers seriously.
Payday loan fraud
Scammers will sometimes create detailed payday loan websites in order to collect your personal data. They’ll use this private banking information in a number of ways – all of which see them take money out of your pocket. It’s also common for criminals to take out a variety of payday loans in your name from a handful of different vendors. Sometimes you won’t know this has happened until these vendors start asking for money.
Identity theft
As many as 1.9 billion Brits said they were the victims of identity theft in 2023. This fraudulent activity 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.
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.
Seniors
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. A study from Natwest found that as many as a third of UK students are targeted as part of a financial scam every year.
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.
A follow-up survey from 2024 showed that things remained largely the same for low-income households, with as many as 16% of those declined for regulated credit turning to a loan shark themselves, or having someone else in their household doing so.
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 2024 Annual Fraud Report revealed that fraud of all kinds cost the UK as much as £1.17 billion throughout 2023 (PDF). And while this was a 4% dip on the total of £1.2 billion from 2022, it still represents a monumental amount being lost as a result of scammers every year.
There were 2.97 million confirmed total cases across the year, which was again a slight dip of 1% from the 2022 figures. In good news, as much as £1.2 billion in unauthorised fraud was prevented from occurring in 2023. That means for every £1 of money that scammers tried to steal, 64p was protected.
When it came to loan fee fraud specifically, figures from Q1 of 2024 show that third-party scams now account for 75% of all loan-related cons. These numbers reflect a growing trend which saw the total number of advance fee fraud incidents rise from 60,000 cases in 2020 to 454,00 for the calendar year of 2022. Encouragingly, those numbers would drop in 2023, when a 34% dip in advance fee fraud was reported by the UK Government.
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.
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.
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. A smart approach when taking out a loan is to never offer up any money until you already have the full amount you’ve asked for in your account.
Pay attention to warning signs — While loan fraud is becoming more sophisticated, there are still telltale signs which can quickly let you know that a scam might be afoot. Here are some of the most common to watch for:
Being cold called or emailed out of the blue
A lack of physical address or location for a lender
Unrealistic loan terms or guarantees (if it sounds too good to be true, it probably is)
No requirements to be given the loan
Spelling errors or weird grammar in any forms of contact that’s made with you
Strange email addresses that don’t seem tied to the institution they’re representing
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.
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.
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. If you ever feel uncomfortable giving out private information, put the phone down or delete the email you’re sending.
Keep an eye out for purchases you didn’t make, or bills for services you don’t use — These are common signs of fraud. Be vigilant with your monthly statements, and make a note of anything suspicious. If you can’t work out where a payment is going to or coming from, contact your bank straight away.
Check your credit file on a regular basis and look for entries you don’t recognise — Similarly, you can also check your credit file or report once a week to see if anything doesn’t look quite right. 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.
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. You may have to pay for these services.
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.
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. Once the system has a rounded picture of who you are, it will be able to quickly detect if any fraudulent activity is happening on any of your financial accounts.
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.
I’ve been scammed, what should I do next?
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.
The bottom line – 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.
Our credible panel of providers ensures you’re getting not only a good deal on your next loan, but one that’s also safe.
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.
Useful links
FAQs
Can someone take out a loan falsely in my name?
Yes. If a scammer has access to your private information, they’ll be able to take out loans pretending to be you. They’ll need information like your full name, date of birth, national insurance number, and address.
How can I find out if a loan has been taken out in my name?
Looking at your credit report is a quick way to see if any loans have come out in your name. If you spot anything which you don’t recognise, it’s best to report it to both your credit bureau and your bank.
What should I do if I suspect suspicious behaviour but can’t be sure it’s a scam?
If you haven’t given up any personal information, cut contact and stop replying. If you feel like your personal data might have already been compromised, change passwords, let your bank know about your concerns, and keep a regular watch on both your bank accounts and your credit report to see if there’s any odd payments.
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