Avoid the new bogus loan scam

A growing number of us are getting caught out by bogus loan companies, but find out how you can beat the fraudsters.

Fake loans scams are particularly nasty, preying on victims when they’re at their most vulnerable. People in significant debt and desperate for a way out are often easy targets. So when that out-of-the blue phone call, email, website ad or text message pops us promising a quick and easy loan, it seems like the perfect solution.

How do fake loan scams work?

Quite simply, to receive a competitive loan you’ll be asked to pay a set-up or administration fee in advance before you receive any cash. But surprise, surprise once you hand over the fee, no loan materialises. You’ll find the loan company can’t be contacted (because it doesn’t exist), your fee can’t be recovered, and the debt problems remain. 

A warning against this type of fraud has recently been issued by Citizens Advice which has seen a significant rise in clients who report losing substantial amounts of money in this way. In fact, the organisation reports that each victim has lost between £35 and £2,000 in fees for non-existent loans.

But fake loans don’t always ask for an upfront fee, and they don't target people with debt problems exclusively. In other cases, these scams have been used as a way of extracting bank details and personal data from victims who have then had their bank accounts raided.

In other words, hoax loans can actually be used as a front for a type of phishing scam where the main objective is to gain access to your bank account, rather than advance fee fraud. Victims of phishing attacks are at risk of far greater financial loss than perhaps they would be through losing a one-off free to a fraudster.

To find out more about phishing, take a look at Online banking: How to stay safe.

Why is this scam getting worse?

Lenders have become far more selective when choosing who they are prepared to lend to as a consequence of the banking crisis. Alas, this has given criminals a perfect opportunity to step in with bogus loans.

The fraudsters are fully exploiting the fact that many people with large quantities of personal debt or poor credit histories are finding it incredibly difficult - if not impossible - to borrow money by conventional means.

How to avoid getting scammed

You can avoid getting scammed by following some very straightforward advice.

First of all, you should never pay any money up front in order to receive a loan. Conventional personal loan companies don’t charge for their services, so you’ll know something dodgy is going on if you’re asked to pay a fee no matter how small it might seem.

Likewise, you should never give out your bank details when you have had unsolicited contact from a company claiming to provide loans. And treat any offer of cheap and easy credit with extreme caution. Ask yourself this: If a high-street lender is unable to lend you money, how on earth can an unknown company afford to do so at such low rates? The answer is it can’t.

If you need a loan, by all means shop around for a competitive deal from a place you trust. The lovemoney.com loans comparison centre would be a great place to start. Make sure you check the terms and conditions of the loan fully before you commit yourself.

What should I do if I have been scammed?

Sadly, the chances are, if you’ve already fallen victim to a fake loan scam, it could be very difficult to recover your money. At the very least, make sure you report the bogus company to Trading Standards. If you suspect you have been contacted by a fraudster, or you have come across a dodgy advert online, report it to Action Fraud straightaway. (You can call them on 0300 123 2040.)

But I can’t get a loan

Always remember, if you’re unable to borrow in the conventional way, a loan which demands an advance payment is not the answer. Nor is a debt management company which offers to help make your debts easier to handle but charges for its services.

If you have debt problems, please seek advice from a debt charity in the first instance before you take any other action. Try the Consumer Credit Counselling Service, National Debtline or visit your local Citizens Advice Bureau where you can get free, independent advice on dealing with your debts. Citizens Advice will be able to negotiate with your creditors on your behalf, and arrange a repayment plan which will be more affordable.

Also check out this video for our view on different debt solutions, and take a look at our regular Dealing with debt blog.

Finally, don't forget, if you have a specific question about debt or scams, you can get help from other lovemoney.com readers by posting it on Q and A.

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