Loan fee fraud
How to spot the signs of a loan fee scam
With the cost of living crisis continuing to bite, millions are turning to loans to get by. And scammers are seizing on this opportunity to swindle some individuals out of their hard-earned cash, in a growing type of scam called loan fee fraud, in which £255 is stolen on average. Here we explain how loan fee fraud works and, crucially, how to protect yourself against it.
What is loan fee fraud?
Loan fee fraud is when scammers trick you into paying a fee for a loan which you won't ever receive.
Fraudsters often advertise fake loans online or create false loan comparison sites and pounce when somebody responds wanting to borrow some cash. They may even contact you out of the blue.
Then, scammers will push you into paying a fee upfront, claiming it's for a deposit, admin fee or insurance, typically asking for between £25 and £450.
While they may say it's refundable, the scammers won't ever return your money. You also won't ever get the loan you thought you were applying for. And, once fraudsters have taken one payment from you, they may try for even more.
It's crucial to guard against loan fee fraud – and in this guide we'll tell you how.
What fees do fraudsters ask for?
Among the most common fees fraudsters ask for are:
A guarantor fee
A loan company fee
A payment release fee
A processing fee
A tax payment
A verification fee
What are the signs of loan fee fraud?
Loan fee fraud is often committed when scammers advertise fake loan services on social media, before then asking for a fee, which sometimes they'll request in a different form, such as a gift voucher. It's critical that you're aware of the following signs of loan fee fraud, to protect yourself against the scammers:
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You're pressured to pay a fee upfront. While upfront loan fees aren't unheard of, legitimate lenders won't ever pressurise you to quickly pay one.
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You've been cold-called. Reputable lenders won't do this.
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You're asked to do a non-standard money transfer or pay with a gift card. This could be a payment through Western Union, for example, or a voucher for iTunes, Google Play or Amazon. Payments made in these ways are much harder to trace.
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There's a lack of relevant info on adverts. Fake loan ads or websites may lack relevant info, including some that is required by law. Certain details – such as an example of the total typical costs of a loan – must be included. Watch out for this and check with the regulator whether or not the lender is legitimate – learn how to do so below.
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There are mistakes in adverts. Many fake loan adverts contain spelling errors and other inaccuracies. While mistakes alone aren't proof of impropriety – after all, we all make 'em – they certainly should set off alarm bells and prompt you to check on the lender.
Be aware of other types of 'advance fee fraud'
Advance fee fraud (aka advance fee scams) is the broader term for cons where an upfront fee is demanded for a service, goods, or some other way you may gain, which ultimately isn't delivered. As well as loans, fraudsters may also attempt to con you by offering:
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Tickets
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Career opportunities
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Lottery prizes
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Property rental
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Fraud recovery
How do I protect myself from loan fee fraud?
Only ever take out a loan from a reputable source. And don't ever be forced into taking one out – you need to be sure that any borrowing you do is planned, budgeted for and affordable.
Lending money is a regulated activity, so lenders must be authorised by the regulator the Financial Conduct Authority (all those featured in our How to get a personal loan guide are). If you don't use an authorised firm, you WON'T be protected if things go wrong, and you could end up losing lots of money.
Also, don't ever take out a loan from somebody who contacts you out of the blue – this isn't reputable – and keep in mind that someone asking for an upfront fee is likely to be a scammer.
Lastly, and critically, ALWAYS check that the lender is registered with (and so authorised by) the FCA – see a how-to below. This is perhaps your strongest protection against the loan fraudsters.
We've lots more help to keep you safe from scams in our Stop scams guide.
How to check if a loan company is registered and licensed
The best way to check a lender is reputable before taking out a loan with it is to cross-reference the firm with the FCA. Take the following action:
Search the FCA's Financial Services (FS) Register to see if the firm is authorised or not.
Make sure the company's contact details match those on the FS Register.
Always use the contact information listed on the FS Register instead of a direct line or email you've been provided.
If you can't find any contact details on the FS Register, or the company claims they're out of date, get in touch with the FCA.
What do loan fee scam emails and messages look like?
A loan fee fraud message would read something like this:
Hi [Your Name],
Your loan application has been successfully reviewed and approved for £2,500. To complete the process and release the funds, an urgent processing fee of £150 is required.
Please transfer the fee to the following account immediately:
Account Name: XL Loans
Account Number: 98765432
Sort Code: 65-43-21
Reference: [Your Initials]
Failure to pay the processing fee within the next 12 hours will result in the cancellation of your loan application.
Thank you for your prompt attention to this matter.
Regards,
Michael
Michael Brown
Loan Processing Department
XL Loans UK
Email: support@xl-loans.co.uk
Do genuine loans have fees?
Very occasionally, legitimate companies will ask you to pay an upfront fee before giving you a loan, such as an application or broker fee. However, this is rare – and as asking for an upfront fee can be a common fraud tactic, you'd need to be extra careful if asked to pay anything in advance (and the safest option is to avoid doing it entirely).
If a genuine firm were to ask you for an upfront fee, the FCA states that the lender must also send you a notice setting out specific details, and before you get the loan, you'll need to reply confirming that you understand and agree.
This notice should include:
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The name of the company as it appears on the FS Register.
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A statement confirming that it is acting as a credit broker.
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A statement confirming that you will need to pay a fee for its services.
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How much you need to pay (or how it will be calculated).
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When the lender will take payment and how.
Other potential loan fees include late payment or early repayment charges, which are much more common and by their nature aren't paid upfront, or those that are included in the overall cost of the loan itself.
Again, always be wary of making any payments upfront and check before parting with any cash.
Looking for a loan? If you're thinking of applying for a loan, ensure it's planned, budgeted and affordable. And, of course, only deal with legitimate lenders. See full loans help via these guides and pages:
Cheap personal loans | Loans Eligibility Calculator | Cut existing loan costs | Debt help plan
What should I do if I've been scammed in a loan fee fraud?
Here is a checklist of what to do if you believe you've been targeted by loan fraud:
If you've already responded to what you believe is a loan scam communication, end all further contact right away.
Call your bank directly, which can advise whether you've been engaging with a real scam, then cancel any payments that haven't been made yet (if it is a scam). For speed and ease, call the 159 hotline – this will connect you directly with your bank.
Report a genuine scam if you're in England, Wales or Northern Ireland on the Action Fraud website, or call it on 0300 123 2040 (this collates information on behalf of the police). If you're in Scotland, report via the Consumeradvice website or call it on 0808 164 6000. You can also ring Police Scotland on 101 to report a loan scam.
To seek further help, contact Citizens Advice (England and Wales), Citizens Advice Scotland, or NIdirect (Northern Ireland). Alternatively, call the Financial Conduct Authority's helpline on 0800 111 6768 (UK-wide).
How to report different scams quickly
The National Cyber Security Centre (NCSC) offers advice and support on how to avoid computer security threats. It outlines various ways to report scams depending on the type:
Email scams. Report any suspicious emails to the NCSC by forwarding them to report@phishing.gov.uk. Make sure not to click on any links within these emails.
Text scams. For dodgy looking text messages, forward them to the number 7726 – this will allow your provider to track who sent it and arrange a block or ban on the sender if it's a scam. You can also report scam texts to report@phishing.gov.uk by providing a screenshot of the message in question.
Website scams. Noticed a website that doesn't look quite right? Report the web address to the NCSC directly via its online form.
Phone scams. Report phone scams via Action Fraud's website or by phoning it on 0300 123 2040 (if you're in England, Northern Ireland or Wales). If you're in Scotland, report via the Consumeradvice website or by phoning it on 0808 164 6000.
Scam adverts. You can report these to the Advertising Standards Authority via its online form (UK-wide). Also, be warned that scam adverts featuring MoneySavingExpert.com founder Martin Lewis are rife online. Martin doesn't do ads – so any you see are fake. For more help spotting them, see Martin Lewis scam adverts.
Loan fee fraud FAQs
It is only safe to pay loan fees upfront when the lender is registered with the FCA, you have a written agreement from the provider and all fees are transparent. If any of these are missing and/or you're being pressured to send the money quickly, it's best to avoid paying anything.
Learn more about the signs of loan fee fraud and how to protect yourself from it above.
Yes – in fact, the majority of loans DON'T come with upfront fees. The most common exceptions include mortgages and some deals arranged by brokers. Outside of this, the only fees you are likely to encounter are charges for missed or early repayments, or interest.
So, if you're being asked to pay money upfront for a loan, do your due diligence before sending any money.
Here are some key points to watch out for that highlight the differences between legitimate and illegitimate lenders, to help protect yourself against loan fraud:
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Transparency. Legitimate lenders will make any costs relating to a loan clear to you – if there is an upfront fee, they have to let you know the amount and how they will take payment, for example. Scammers won't.
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Regulation. A legitimate lender will be regulated by the FCA; fraudulent lenders won't be. See how to check whether a firm's regulated.
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Payment pressure. Unlike fraudulent firms, reputable lenders won't ever put pressure on you to quickly pay upfront. If this happens, it's likely to be a loan scam.
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Payment method. Illegitimate lenders may ask for payment in unusual ways, which are harder to trace, such as through crypto exchanges or via gift vouchers, unlike reputable firms.
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Professionalism. A regulated lender is much more likely to appear professional, including having a polished website and communicating clearly. That said, this isn't necessarily exclusive to legitimate lenders, so always be on your guard.
Is it safe to pay loan fees upfront?
Are there loans without upfront fees?
What are the differences between legitimate and illegitimate lenders?
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