For people facing financial hardship, sometimes taking out a loan to tide things over can seem like the most viable solution. But if you’re out of work or have a lower-than-average credit rating, it can be *harder to get credit from mainstream lenders and mean that more expensive forms of finance in the sub-prime market are the only viable option. It often feels like a hopeless situation.

Just as all seems lost, along comes a finance company, calling from out of the blue, claiming they’ve got a loan that you’re likely to be accepted for at a decent APR. All you need to do is make a one-off refundable insurance payment and the loan is yours. But the loan never arrives and you never get your insurance payment back. That’s exactly how Loan Fee Fraud works.

What is Loan Fee Fraud?

Loan Fee Fraud is not a ‘new’ scam. You can find news stories about it going back a few years in various shapes and forms (sometimes it’s a loan, sometimes it’s a job offer), but according to official figures from the Financial Conduct Authority (FCA), reported cases went up by 44% in 2017, costing members of the public a total of £3.5 million, with fraudulent requests for amounts ranging anywhere between £25 and £450.

If it sounds familiar, that’s because there are one or two similarities between how the scam is being carried out and how PPI was being mis-sold a few years ago: many people were lead to believe that buying insurance for the loan at the point of sale was necessary for their application to go through or would improve their chances of being accepted. Because most lenders that were subsequently found to have mis-sold PPI were regulated by the FCA, millions of borrowers were able to reclaim any money owed and tighter regulations were brought into place to prevent consumers being misled in the same way in the future.

When you take out a loan from an unregulated lender, you get no such guarantee.

The main difference between the two is that Loan Fee Fraud is a scam – pure and simple. Not only does it not improve your chances of getting accepted for credit, but there isn’t actually a loan at the end of it. In some cases the scammers may ask for several payments to be made, alleging that the loan cannot be released until these payments are made, so not only do you get the loan amount you need, but you’re also left out-of-pocket for any amount you paid as well.

It’s important to remember that there may be some genuine instances where you are required to make a payment before you can be granted credit, such as an Arrangement Fee when you apply for a mortgage or if you need to pay a deposit while taking out finance. If you’re in any doubt at all about whether you can trust a lender, check to see if they are on the Financial Services Register and authorised by the FCA before applying.

What to look out for:

• Any fees that are expected to be paid upfront
• Anything that suggests you will be more likely to get accepted for credit
• Being asked to pay in an unusual way (e.g. in iTunes vouchers or a money transfer service)
• Firms not authorised by the FCA

How to improve chances of getting accepted for credit

This type of fraud specifically targets people who may have Adverse Credit on their report and may struggle to get accepted for credit by mainstream lenders. While the subprime market usually offers higher rates of interest than most mainstream forms of credit, you should never have to risk applying for any form of loan that is not regulated by the FCA.

Without FCA-authorisation you’ll have no protection from the Financial Ombudsman Service in the event of things going wrong, and you’ll be a lot less likely to be able to reclaim any money lost.

For your best chances of getting accepted for any kind of credit, it’s important that you check your Credit Report first, so you can see what lenders see. If there is anything appearing on your Credit Report that would cause a lender to think twice before loaning you money, you will see it there first. There are a number of things that could affect your ability to get credit, but until you check your Report, you’re going in blind.

If you haven’t already, you can try checkmyfile free for 30 days, then for just £14.99 a month afterwards, which you can cancel at any time.