What is loan fraud and how does it work?
Fraud isn’t a new concern, but as technology develops and banking habits change, there’s been a rise in more sophisticated criminal activity. Unfortunately, this can make fraudulent activity harder to spot, and it’s continuing to cost consumers billions. In fact, in 2022, UK consumers lost £2,300 every minute due to fraud, with losses totalling £1.2 billion across the year.
There are lots of different ways that people might fall victim to financial scams, but one of the most prevalent is loan fraud. In this quick guide, we’ll explain exactly what loan fraud is and discuss the best ways to protect your assets from this dangerous scam.
What is loan fraud?
Loan fraud is an umbrella term used to describe different types of financial scams that look to take advantage of the loan process. The three main types are:
1. Loan fee fraud
Loan fee fraud often targets people who have applied for a loan online. Criminals might contact you requesting a deposit payment upfront before you can receive your loan, which is something that authorised lenders may do for a legitimate loan request, so it can be difficult to spot fraudulent activity in this case. According to the FCA, consumers reported an average loss of £260 from loan fee fraud. The best way to protect yourself is by doing your research and only using trusted firms when applying for loans.
2. Loan repayment fraud
As the name suggests, loan repayment fraud will look to take advantage of consumers who owe money. Often, criminals will notify targets that they’ve missed a payment and owe a penalty fee on top of the debt. To prevent falling victim, it’s important to understand the terms of your loan/line of credit, and always get in touch with your lender directly if there are any concerns or doubts about how much you owe.
3. Identity fraud
The final type of loan fraud to be aware of is when criminals attempt to steal your identity in order to get a loan for themselves. They could apply for a small payday loan, or something as big as a mortgage or a credit card. Losing important documents will immediately put you at greater risk, so it’s important to always keep things like passports and your driving licence in a safe place. And, whenever you do give out personal information, make sure you only share it with a trusted firm and use secure websites.
How to protect yourself from loan fraud
Fortunately, there are plenty of things you can do to protect yourself and your money from loan scams. Firstly, it’s always good practice to regularly monitor your accounts, to spot any unfamiliar charges or activity. The easiest way to do this is to sign up for online banking, so you can manage your money through an app or your bank’s website.
Cyber criminals are becoming increasingly sophisticated, and are finding more ways to access your personal information online. However, you can protect yourself by using anti-virus software and a firewall on your devices. This will help to prevent malicious activity and data leaks that could leave you vulnerable to fraud. Finally, if you’re ever in doubt about someone’s identity or intentions, it’s always best to err on the side of caution. If someone calls you and you can’t verify their identity, hang up and phone the bank back on the number displayed on their website.
Author bio: George Taylor
George is a freelance content creator who specialises in financial security. He earned a Master’s degree in finance and has since applied his knowledge by writing articles for international publications.