Loan fraud and scams to avoid

Last updated: 8 May 2022   By Dr Lucy Brown, Editor

Loan scams target people looking for a loan or struggling with debt issues.

Fraudsters may cold call customers and ask for a fee to set up a loan or they may pretend to be legitimate lenders and ask for application fees.

Legitimate loan companies will not ask for money upfront, and they will not pressure customers into making a quick decision.

It's important to check whether a firm is authorised and don't be afraid to contact them directly through an official number.

scam alert
Credit: Tuan_Azizi/

What are the common types of loan scam?

There are several types of loan scams, but the purpose of an individual scam will usually fall into one of these categories:

  • Demanding upfront fees ahead of a loan
  • Persuading loan customers to repay money into a fake account

There are also Universal Credit scams that can specifically target the most vulnerable, although efforts to tackle those have been made in recent years.

As scammers are constantly evolving their tactics to take advantage of new technologies and work around the latest regulations, it's important to recognise the hallmarks of a loan scam and we'll look at those in more detail below.

Loan fee fraud

Loan fee fraud is a type of advance fee fraud which means fraudsters try to get a scam victim to pay an upfront fee ahead of getting a loan.

This type of scam often targets people who are searching for loans online. Fraudsters reach out to the victim to offer them a loan - but demand an upfront fee.

Sometimes, the victim is persuaded to make several payments before the scammer disappears, but the common theme is that the loan money never turns up.

Warning signs of loan fee fraud include:

  • Being contacted by a lender after making several applications online to other lenders
  • Being asked to pay a fee in an unusual way, like by iTunes voucher or a money transfer service like Western Union
  • Being told the fee is refundable (e.g. a deposit)
  • Not receiving a notice from the lender that includes the legal name of the firm (you can check that out on the FCA register - see below) and a proper statement about the fee and how it was calculated
  • Not being asked to confirm receipt/understanding of such a notice

The Financial Conduct Authority (FCA) issued figures back in 2018 to show the scale of the problem in 2017:

  • There was over £3.5 million lost to loan fee fraud
  • Over 4,700 reports of loan fee fraud were made to Action Fraud
  • The number of loan fee fraud reports to FCA increased by 44&

Their data also found that 72% of the public were unaware of such scams in relation to loans.

As the FCA and UK Finance have not published specific figures for loan fee fraud in recent years, we don't have more recent data on that type of fraud, but we do know that advance fee fraud itself has been increasing.

Data from UK Finance found that there were 3,646 cases in H1 2018 and this had increased to 9,840 by H2 2021, an increase of almost 170%.

Clone firms

'Clone loans' are when a scammer pretends to be a legitimate financial company such as a bank (often the victim's bank).

These scams can be hard to spot because fraudsters are good at disguise. They might give you links to cloned websites or send emails with the same graphics as the real bank.

Sometimes, these clone firms will encourage customers to make extra loan payments on an outstanding loan or insist they are behind with payments.

These scams can also take the form of cold calls from lenders saying customers can get a loan if they pay an application fee. Once again, the money will never appear and customers will be out of pocket.

If in doubt, check:

  • The email address - does it use the domain name of the bank? For example, an email address from Barclays will end ''.
  • Does the website URL look right? Scammers sometimes use sub-domains to give the impression of a legitimate website (e.g. Also make sure that the URL starts with https:// not http://.

Most importantly, insist on contacting the financial institution directly - don't agree to anything on the call/email conversation initiated by the firm. Look up the correct contact details on the FCA register (see below).

Universal Credit scams

The introduction of Universal Credit offered another way for loan scammers to reach potential victims.

In July 2019, there were reports of a multi-million-pound scam targeting benefits claimants. Fraudsters contacted potential victims saying they could secure them a payday loan or a government grant. As the victims were often struggling financially, this was a tempting offer for many.

Once the victim provided their details, the scammer made a universal credit claim for an advance loan. The fraudster charged the victim a large part of this loan as a 'fee' and then disappeared.

When they got a letter about their universal credit application, the victim realised they were now in arrears to the Department of Work and Pensions (DWP) - for the full amount of the initial loan, including the 'fee' paid to the scammer.

In September 2019, the DWP announced new measures to crack down on this kind of scam. Additional safeguards during the application process include the need to see a member of Jobcentre staff before getting the advance loan.

These scams nevertheless persisted and there were fresh reports during the coronavirus crisis, with the Department for Work and Pensions (DWP) issuing warnings for claimants to be vigilant.

Any approaches about benefit advances or extra loans should be treated with extreme caution - if in doubt, talk to the Jobcentre directly to check whether something is genuine.

Equally, be cautious about any friends saying they can make applications move more quickly. In these cases, claimants often provide a fee and never receive the loan.

How to spot a loan scam

As well as the specific tips above, the best advice is simple: be wary.

Here are some things anyone looking to take out or find a loan online should be wary of.

1. Never trust an unexpected offer

Legitimate lenders don't contact people out of the blue.

Many people who get caught out by loan scams are contacted by a 'lender' directly.

If this happens, whether it's by text, email or through a phone call, it should set alarm bells ringing.

This is true whether borrowers are contacted via phone, email, text or even by someone showing up on the doorstep.

2. Ask if it's too good to be true

When considering a loan, or being offered a grant, the first step is to ask: 'Is this offer too good to be true?'

Many legitimate lenders offer loans for those with poor credit history but guaranteed loans, one any applicant will be approved for regardless of their credit history do not exist.

Similarly, extremely low interest rates on short term loans do not exist and most real lenders in this market cannot offer very large loans.

Deals that seem too good to be true are usually just that, so compare loans from major providers to see what the standard APR rates are.

However, don't assume that offers similar to the rates offered by the big lenders are safe.

Loan fraud is growing ever more sophisticated, so it also pays to check for other signs that the company is legitimate.

3. Look out for language tricks

There are language tricks used by fraudsters to make people trust them across all types of scams including telephone fraud and online fraud.

These include:

  • Using bits of information about the victim (which could have been gathered from various sources) to make them sound legit
  • Welcoming scepticism and turning it back on the victim by applauding them for being aware of security risks
  • Switching between high-pressure tactics and understanding, lower-pressure conversations

Legitimate loan providers will never push people to make decisions quickly or place them under pressure to make decisions.

They will also be fine with customers calling the lender directly on a publicly advertised number to find out if the offer is genuine.

4. Check the FCA register

This step is the beginning of due diligence, which basically means 'checking that everything looks legitimate'.

All lenders and companies offering to find their customers a loan in return for a fee in the UK must be registered with the FCA, which has regulated small lenders and brokerage firms since April 2014.

Potential borrowers should check the loan firm against the FCA register, which lists:

  • The main contact details for firms
  • Reference numbers (FRN)
  • 'Status' (e.g. authorised, approved...) of firms
  • Whether the firm is covered by the Financial Services Compensation Scheme (FSCS)
  • Whether the firm is covered by the Financial Ombudsman Service
  • Which activities the firm can provide (e.g. whether it is authorised to give loans)

These details can be checked against the details provided by the firm. If anything doesn't add up, avoid the firm.

5. Check again

Now it's time to carry out some extra checks.

  • Examine the lender's website:
    • Is the registration number easily viewable?
    • Does the site have a contact page with their phone number and address? A contact form by itself isn't enough to be convincing.
    • Does the text (e.g. on the About Us page) seem professionally written, or hastily put together?
  • Call the lender using the number on the FCA website - not using any contact details, including direct lines, provided by the firm.
  • Search the lender's name online:
    • On its own, and
    • With key words (e.g. "Company X scam")
  • See if the company is listed on sites like Trustpilot. Check the reviews.

Start from the point of mistrusting the loan offer and then work towards ticking all the boxes to check whether the offer might be genuine.

6. Be wary of paying upfront

Perhaps the biggest sign of a potential scam is the upfront payment.

A direct lender cannot charge an upfront fee. Credit brokers can only charge a fee if the customer receives an explanation of the fees (in writing) and agrees (also in writing).

Fake lenders (not credit brokers) have given the following reasons for asking for cash - from £35 to £2,000, according to Citizens Advice - up front:

  • "Insurance is needed to cover the loan."
  • "You need to pay the first instalment on the borrowing to verify your details and activate the loan."
  • "We need this money to pay someone to set up the loan, it will then be taken out of your borrowing."

All of these were scams. Remember that an additional payment is 'upfront' up until the point at which you've got your borrowed money in your account.

7. Don't be rushed

A big red flag in any financial transaction is when the other party tries to rush the customer into making a decision or a payment.

Legitimate financial firms don't pressure people into loans they can't afford or aren't sure about. Only scammers will try to panic their 'customers' into on-the-spot commitments.

What to do after a loan scam

It's hard to recoup losses after being victimised by a loan scammer. However, there are things you can try.

Report it

Concerned consumers should contact the FCA on 0800 111 6768 or by using their reporting form.

Action Fraud take calls from anyone who has noticed a scam or suspects fraudulent activity. They can be contacted on 0300 123 2040 or you can report your suspicions through an online form on the Action Fraud site.

Regaining money lost through loan fraud

When money is lost through loan fraud the chances of recovery are slim. Most scams are carried out online, which means the perpetrators are hard to trace.

Even those started over the phone or in person can be difficult to chase - fraudsters don't stick around in one place for long.

Many banks will be open to discussions about whether money sent to a fraudster could be refunded, but since the failure to decide how to fund such repayments, this isn't guaranteed.

If a scam covered by the FCA results in someone being convicted, however, victims can apply for compensation. The FCA does this on behalf of the victims.

Bear in mind that such compensation will usually arrive a long time after the scam has happened. Court cases take ages, and compensation isn't usually paid out until after the trial is concluded and a full investigation has been carried out.

Stopping nuisance calls

While it may sometimes seem like loans companies can somehow smell debt, the truth is that they often share people's personal details between themselves.

According to Citizens Advice, one of their clients even began to be contacted by loans companies after applying for a loan from his bank.

The result of this eager sharing between loans companies is an intrusive barrage of cold calls, texts, emails and letters.

While nuisance calls have declined from the heights seen in 2015, the end of 2020 saw an uptick in nuisance call complaints and it's important to remain vigilant.

There are strong ways to fight back against nuisance calls, though. Our guide on stopping spam calls and texts has more information on how to get rid of the aggravation for good.

Get money help

Many of these loan scams target people who are desperate for further borrowing because they are already troubled by debt problems.

If that sounds familiar, then now is the time to seek help. We've got more information in our comprehensive guide on where to go for free debt help in the UK.

Options for repaying debt include informal arrangements of payments to creditors over a set period of time, as well as more formal individual voluntary arrangements. Both easily beat borrowing to pay for borrowing.

Loan fraud: what's happening?

Choose first published this guide in 2012 and we said that the increase in fake loans had been bought about by the economic downturn, which caused the average household's finances take a savage beating and credit to become harder to come by.

In retrospect, while that was clearly a factor, a bigger driver was the growth in the payday loans industry, which thrived online, and which is easily imitated by fraudsters and fed by credit brokers.

Regulators cracked down in 2015 and it became more difficult for firms to make huge profits in that sector, precipitating the collapse of big names like Wonga in 2018 and QuickQuid in 2019.

Although the tide has turned on such lenders, payday loans' short heyday changed public perception on what credit looks like. People are more likely to expect short application processes and the promise of same-day money transfers, opening themselves up to scam attempts.

We see periodic warnings from the FCA, Action Fraud, UK Finance and other groups, especially when a specific type of fraud becomes widespread for a time.

With many households struggling with the cost of living in 2022, it's important to remain vigilant and remember that, if something seems too good to be true, it usually is.

Summary: Stay alert to loan scammers

Taking out a loan or looking for a quick solution to ongoing financial problems can lead to us making poor decisions and falling for scams.

We've seen rises in various types of fraud over recent years, with impersonation fraud increasingly targeting younger victims.

Technology can make applying for loans and other forms of credit easier, but it can also help scammers look more legitimate, so it's vital to be wary when any loan opportunity crosses your path.

It's also worth looking into your options carefully if you're struggling and may need a loan - payday lenders are not the only option available for quick credit decisions and there are alternative lenders around.

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