Loan scams How to spot a loan scam

Loan scams aren't always easy to spot. Some loan scammers go to great effort to appear genuine by using official looking logos, stationary and websites. But there are a range of things you can be on the look out for to avoid being exploited by loan scammers.

Loan scam characteristics

Loan scammers often target people who are already in debt

Avoid loan companies offering guaranteed personal loans and those that say you've been pre-approved for a loan – legitimate lenders base their decision on whether you'll be able to repay. Always take care with companies that claim to offer low cost loans to those who can't get credit elsewhere.

Legitimate loan companies don't request money up front, so if you're asked for an advance fee for processing, application, repayment or insurance, you can be sure it’s a scam.

Once you respond to a loan scam, some scammers ask for further payments – giving a range of excuses from the first fee not arriving to admin charges for releasing the loan cash.

You should also be concerned if the loan application involves ‘wiring’ or sending money as soon as possible by Western Union, Moneygram, or similar methods.

Stay away from loan companies and scammers that pressure you for an instant decision. If you're approached by a loan company you've never heard of, look it up on the internet to see if it's a known scammer.

Loan scams from our files

In 2006, Which? featured a loan scam that had been reported to the Citizens Advice Bureau (CAB). A CAB client from Denbighshire, north Wales, applied for a loan of £10,000. He was asked to send off a cheque for almost £50 as the arrangement fee.

After the money had left his account, he received a letter turning him down for the loan - and his fee was never returned.

Peter Tutton, Social Policy Officer at Citizens Advice, said: 'These con men prey on vulnerable individuals and promise them a low-interest loan as an easy solution to their money problems. Unfortunately, in most cases there is no loan and this is just a front for scammers looking to make a quick buck.

'The problem is that once people have sent off their money, it is very difficult to get it back.'