Beware of Loan Scams
What You Need to Know
- There’s been a huge rise in scams involving bogus loan companies in recent years.
- These scams usually involve demands for a fee that has to be paid upfront as part of the process of getting a loan approved. Once the fee is paid no loan is ever arranged.
- As well as bogus loan companies, there are also nefarious loan brokerage firms that demand fees upfront even when there’s little or no chance of a loan being found.
- Scams will often ask you to transfer payments in an unorthodox manner. For example, you may be asked to pay fees using Ukash vouchers.
- Always be sceptical of companies that contact you out of the blue offering loans, especially if they claim they can be ‘guaranteed’ despite your credit history.
- Be sure to use the Consumer Credit Register to check the credentials of any loan company you’re thinking of dealing with.
- If you’ve been scammed or have suspicions about an organisation contact Fraud Action to report it.
Since the economic downturn many people have found it difficult to obtain credit from traditional lenders. Unfortunately, this has lead to a huge rise in scams involving bogus loans companies looking to take advantage of people who find themselves in need of money and with limited options.
These fraudulent organisations prey on people’s desperation, using the promise of a loan that will never materialise as a pretence to charge their victims upfront fees for their services. However, once they’ve got their money, they disappear leaving their victims, who are usually already in a difficult financial situation, even further out of pocket.
By knowing how these criminals operate you can spot the tell-tale signs of a scam and avoid being stung:
Most loan scams involve a demand for a fee which needs to be paid before you can receive your loan (though, of course, they have no intention of ever actually providing you with any money). There are a number of different ruses they might use to trick you into giving them what they want:
- Most commonly the scammers will ask for some sort of upfront fee for ‘administration’. In the case of bogus loan brokers they will demand an upfront fee for attempting to find you a loan. They’ll either provide nothing at all or something entirely inappropriate.
- If the fraudsters are claiming to be lenders, they might claim that the money they are asking for will act as your first repayment and ‘activate’ the loan.
- In other cases you might be told that you’ve been approved for a loan but that you have to pay for insurance before they can transfer the money.
- Some scammers will request your debit or credit card details as a ‘security measure’ only to then debit you.
Whatever the context, being asked for any form of upfront fee should set alarm bells ringing. No matter what arrangements are supposed to be in place, if you’ve been put in a situation where it’s being demanded that you hand over money before you’ve actually received the loan on offer, you should be extremely sceptical. Even if the company in question is only offering to find you a loan rather than actually provide one, if you hand over money up front there is a very good chance you will never get any worthwhile help from them.
Unusual Payment Methods
Though often fraudsters will simply pressure you to transfer them money or give over your financial details, it’s also popular for them to ask you provide money via more unorthodox methods. Recently there have been many scams where victims have been asked to purchase Ukash vouchers and give over the serial numbers on the phone or in an email. Other money transfer services such as Western Union are also abused in this manner.
You should be very suspicious if you’re contacted about a loan out of the blue. At a time when most lenders are being cautious about giving credit, if a company has made the effort to contact you with the offer of a loan the situation could be too good to be true.
If you have been applying for credit you may find that your details have been shared between companies and they can fall into the hands of bogus organisations. By trying to prevent your details being shared you may be able to reduce the chances of fraudsters being able to target you. The Telephone Preference Service can help you opt out of receiving various forms of marketing calls.
Lack of Interest in Your Credit History
If a loan company or brokerage service tells you that they can definitely help you despite your credit history, or fail to even enquire about your credit history, then you should be very wary. As a general rule, you should be highly suspicious of anything that is advertised from the outset as being ‘guaranteed’. Again, if a situation appears to good to be true, it probably is.
Lack of Credentials
Most bogus companies will operate through a website which they can use to front their operation and then take down again if they’re discovered. Never assume the legitimacy of a company based on their website alone. Try and find phone numbers, a physical address, and, if the company is claiming to be a lender, check it has a valid credit license. You can do this using the Consumer Credit Register.
If You’ve Been a Victim
Unfortunately, it can be very difficult to recover any money you do lose to fraudsters operating a fake loan company, as they can simply disappear. If on the other hand you’re dealing with a business which you’re still able to contact but who refuse to refund you money taken for services which weren’t provided (for instance, if a broker failed to find you a loan, but won’t refund the fee) you should contact Trading Standards to inform them.
If the brokers are attempting to operate as a legitimate business they're bound by the Consumer Credit Act, which bars brokers from keeping any more than £5 of a client’s money if they can’t provide them with a loan.
If you’ve been hit by a straightforward scam you should contact Action Fraud, who work with the National Fraud Intelligence Bureau and the City of London Police to combat fraud.
- If you have credit issues but feel you need a short term loan, pawnbrokers can provide a legitimate way of getting access to credit. Find out more with our guide to pawnbrokers.
- You can find out more about prevalent scams from the FSA’s scams and swindles page, whilst the Citizens’ Advice Bureau can help you take on any companies you believe to be behaving fraudulently.
- Aside from getting scammed there are other risks with pursuing credit if you find yourself struggling with money. Find out more with our guide to payday loans.