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What is loan fraud?

Loan fraud is an umbrella term used to describe different types of scams that involve loans in some shape or form. These include:

Loan fee fraud

Loan fee fraud targets people who have applied for a loan online. Criminals contact you out of the blue and tell you you have been accepted for a loan. But before you can receive the funds, you are told you need to pay an upfront fee. Fees are often around £25 to £450, and you might be asked to pay this as a deposit, admin fee, insurance or because you have poor credit. 

The fraudster will often pressure you to pay the fee quickly by bank transfer. Or, in some cases, you might be told you need to make the payment through a gift card.

Once you pay up, your money is lost and you never receive the loan. If you also give the fraudster your bank details, they can also take money from your bank account.

Loan repayment fraud

This type of scam targets those who have already taken out a loan. Fraudsters use this information to pretend to be the loan provider, asking you for supposedly overdue payments. They might do this by sending you letters or emails, often adding a penalty fee to the repayment.

Once you’ve paid the money, you discover you owe the same amount to the legitimate loan provider. 

Identity fraud

Identity fraud occurs when a criminal obtains personal information – such as your name, address, and date of birth – and uses it to apply for a loan.

How to protect yourself from fraud

You can take a few steps to protect yourself from loan fraud. 

1. Apply for loans with FCA-authorised lenders

Before applying for a loan, ensure the Financial Conduct Authority (FCA) has authorised the lender. You can do this by checking the , which will confirm the lender’s authenticity. Check that the information you’ve found online about the lender matches the details on the FCA website so that you don’t end up using a fake website. This includes the FCA registration number.

2. Carry out some research

It’s also worth doing a quick online search for the lender to ensure there is no negative media coverage about it. Check out customer reviews on sites like , and be cautious if you can’t find any information about the lender. 

If you receive a phone call from someone offering you a loan, hang up. Look for the company online and call the main telephone number to see if it’s legit. You should also check if there is a physical address – if you can’t find one, it could be a sign that it’s a scam.

3. Be wary of upfront fees and guaranteed approval

Some loans come with arrangement fees, but if you’re asked to pay them upfront, genuine firms will send you a notice including specific details. Plus, if you cancel within 14 days, you should get the fee(s) back. The provider should inform you of this when you apply for the loan.

Be wary of any lender offering guaranteed approval without a credit check. Lenders use credit checks to assess your reliability as a borrower, so if you don’t have to undergo a check, it’s unlikely the company is legitimate. 

4. Watch out for warning signs

Unexpected calls, texts, letters, and emails asking if you want a loan are unlikely to be genuine. Look for spelling and grammar mistakes, as this can indicate a scam. Also, be wary of urgent offers requiring you to ‘act now’. 

Alarm bells should also ring if your provider doesn’t give you a transparent contract detailing how much your loan will cost, what the fees are, the interest rate and the total amount repayable. It should also explain your payment options and when you need to pay. If your contract is unclear or missing information, don’t sign it. 

5. Be wary of disclosing financial information

If someone asks you to provide your full bank details, PIN or passwords, whether over the phone or via email, don’t. Banks and legitimate lenders will never ask for this financial information.

6. Destroy paperwork containing your details

Shred or otherwise destroy any documents and paperwork that contain personal information such as your name, date of birth and address. If a scammer gets hold of this information, they can use it to commit identity fraud.

7. Check your credit record

It’s sensible to check your credit record regularly with one of the three main credit reference agencies: Equifax, TransUnion, and Experian. This can help you to spot if someone has been trying to access credit in your name. You can then report it to the lender.

8. Update your cyber security

Ensure you install and update anti-virus software on your computer and regularly update your apps. You should also assign different passwords for all your accounts and use two-factor authentication where possible. This means you need to enter a code (usually sent via text) as well as your password whenever you log in. Two-factor authentication reduces the chances of a fraudster accessing your accounts. 

What should I do if I’ve been scammed?

If you realise you’ve been scammed, you might feel terrified, anxious, embarrassed and unsure what to do next. But try to remain calm and follow the steps below:

• Report the incident to the police through . They can offer support and generate a police report, giving you a crime reference number

• If money has been taken from your account, contact your bank immediately and pass on your crime reference number. Your bank can then secure your accounts and block them if necessary

• Stay informed and be proactive to prevent fraud from happening again