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Loan-fee fraud: What is it and are you at risk?

published: 15 December 2022

Understanding loan-fee fraud

The number of financial frauds and scams has increased1 since the start of the cost-of-living crisis.

Loan-fee fraud is a particular type of financial scam that is becoming more common. The Financial Conduct Authority (FCA) is receiving a growing number of calls about loan-fee fraud, and it estimates that on average victims lose £2602.

We carried out a survey and discovered that 1 in 20 people across the UK3 are thinking about taking out a loan in the next six months. So, it’s more important than ever to know how to spot a loan-fee fraud so you can protect yourself from becoming a victim.

Over half (55%) of Brits surveyed said they hadn’t heard of loan-fee fraud, so what is it?

More than half (55%) of the 2,000 people we surveyed haven’t heard of loan-fee fraud. 7% of people told us they had heard of it, and 25% thought they knew what a loan-fee scam is – but when we told them, they realised it wasn’t what they thought it was!

Loan-fee fraud is when you are asked to pay an upfront fee for a loan, but once the fee has been paid, you never receive the loan you have been promised. There is usually a lot of pressure to pay the fee quickly – you might be told that if you delay, you won’t get the best rates for the loan. In some cases, you’re told to pay the fee with vouchers online.

1 in 7 surveyed said they or someone they know has fallen victim to a loan-fee scam

If you have fallen victim to a scam, you are not alone and you should never feel embarrassed. 1 in 7 (15%) of the people we asked said they or someone they know has fallen to a loan-fee scam. A further 4% said they have fallen victim to another type of loan scam.

  • 12% said they knew someone who had fallen victim to loan-fee fraud, where you are asked to pay a fee for a loan that you never receive

  • 3% told us they had personally fallen victim to this type of scam

  • 4% had fallen victim to another type of loan scam

Experts reveal how to find a loan safely

Where would Brits consider getting a loan graph

Of the 2,000 surveyed, more than half (58%) said they’d turn to their bank if they were looking for a loan. Nearly 1 in 10 said they’d check a price comparison site where you can compare different loans to find the best deal.

Our fraud expert, Nancy Artell says, “If you search for a loan through a price comparison site, not only can you check that you’re getting a competitive deal, but you’ll also have the reassurance that the company you’re borrowing from is legitimate.”

Worryingly, 7% of people told us that they’d look for a loan on social media. If you’re searching for a loan online, it’s really important that you carry out extra checks to make sure the company is legitimate.

Our fraud expert, Nancy Artell recommends “you do this by checking that the company is listed on the Financial Conduct Authority’s Register. The FCA is the regulator that oversees financial service providers. If the company offering the loan isn’t listed on the FCA Register, it’s a warning sign that it may not be legitimate.

“If the company is listed, double check that the information you’ve found online matches up with the details on the register. For instance, the phone number and website address. Check carefully because fraudsters can create fake websites that look like the real thing.”

Payday loans are still popular for those surveyed, with 1 in 11 opting for this type of loan

1 in 11 people we surveyed said that they would turn to a payday loan.

Payday loans tend to have very high interest rates and typically short repayment periods. This can make them difficult to repay and can even lead to a cycle of debt where you take out more loans to repay the original loan.

Before you turn to a payday lender, try our loan eligibility tool to see what other options could be available.

How to spot the signs of loan-fee fraud

7% of people we surveyed said that they would look on social media for a loan. Loan-fee frauds are often advertised on social media so take care if you’re looking for a loan online.

Our fraud expert, Nancy Artell says, “Some lenders do charge a fee upfront for a loan, so it’s important to know the signs of a loan-fee fraud before you fall victim. A legitimate lender will never pressure you to pay a fee quickly and you’ll never be asked to pay it with a voucher online. If you feel pressured, stop, and check to make sure the lender isn’t a fraudster.”

Here are some common signs of a loan-fee fraud to watch out for when applying for a loan.

Scam sign 1: Spelling mistakes in the advert

38% of people we surveyed correctly said that spelling mistakes in a loan advert were a sign that the loan could be a scam. Look out for typos, poorly written adverts and even company logos that don’t look quite right.

Scam sign 2: No legal information

35% of people we surveyed correctly said that if an advert doesn’t have legal information, like the interest rate or company information, it could be a scam.

Scam sign 3: Being pressured to pay a fee upfront or in vouchers online

A legitimate lender will never pressure you to pay a fee quickly and will never ask you to pay online using methods like vouchers. If you’re applying for a loan and you feel pressured, stop and take time to check the lender is legitimate.

Check that they are registered with the FCA and only use the contact details on the FCA website to contact the lender.

Common signs of a loan-fee fraud

144,000 people are members of ‘loan’ and ‘borrow’ threads on Reddit, which could lead to people borrowing money from strangers

As part of our research into borrowing and loan applications, we discovered two Reddit threads4 (r/ loans and r/ borrow) that boast over 144,000 international members. People can use these threads to ask to borrow money from strangers who are not regulated lenders. This could leave you vulnerable to being scammed or having to repay high interest rates on loans.

Nancy Artell, fraud expert at MoneySuperMarket, said “If you have been rejected for a loan, please avoid unregulated lenders and be skeptical of online communities. You risk being scammed or borrowing money that you cannot afford to repay. If you’re worried about your finances, you’re not alone. Reach out to charities like Citizens Advice and StepChange who can help.”




3MoneySuperMarket surveyed 2,000 members of the British public in September 2022.

4Reddit data collected 12/09/22.