What is loan fraud and how can I prevent it?

What is loan fraud and how can I prevent it?

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The most common type of loan scam involves asking to pay an upfront fee in order to secure a loan that then never materializes. According to Fraud in action, the UK’s national fraud and cybercrime reporting center, once you lose money in the scam it becomes loan fraud.

With so many lenders now operating online, it’s harder to tell who’s legitimate and who isn’t. To avoid falling victim to loan fraud, watch out for these Common loan scams and warning signs.

Loan fee fraud

According to The Financial Conduct Authority (FCA), UK citizens lose over £ 3.5million a year to loan fee scams. These scams are very simple: Scammers come up with a loan offer that sounds good, except that it requires an upfront fee. Once the fees are paid, the loan never materializes.

Warning signs of loan fee fraud include being forced to say yes and pay quickly and being asked to pay in an unusual way, for example through a money transfer service like Western Union. You should also be wary if the offer is from a lender you haven’t contacted. The FCA warns that some legitimate lenders charge upfront fees for their services. If you are not sure whether a lender is legitimate, you can always contact the FCA to see if the business is registered with them.

Other types of loan fraud

Another common type of loan fraud relates to Universal Credit, the government system that combines six types of benefits into one payment. This includes everything from housing allowances and income support to the working tax credit.

The Universal Credit scam involves fraudsters contacting benefit seekers and offering them free government grant. Once people share their personal information, the crooks use it to apply for universal credit on behalf of the victim and take the money.

Clone loans are also common scams. In these scams, the fraudster masquerades as someone else, like the victim’s real bank. They make contact using letters or emails that look exactly like those from the institution they claim to represent. These scammers target the personal information of their victims or offer a “loan” in exchange for an upfront payment. Of course, the loan never shows up.

To protect yourself

There are a lot of things you can protect yourself against financial fraud. When offered a loan, always ask yourself, “Is this offer too good to be true?” If you have a bad credit rating, a loan with a very low interest rate or a guaranteed loan offer out of the blue is probably not realistic.

Also, never let a lender rush you into a decision. If someone is pressuring you to enter into a loan deal, beware. If you are asked for an upfront fee, ask exactly what they cover and ask for a written explanation.

Finally, always ask the lender for the main contact details of the company they represent. Then check the FCA Register. All lenders must be registered and will appear in the FCA database. If something doesn’t stick, walk away.

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