Loans - Don't pay upfront

Don't pay for a loan upfront. That's the new warning from Citizens Advice for people who may come across companies offering to arrange personal loans but requesting an upfront fee.

The charity is reporting increasing numbers of people falling victim to a scam involving paying money upfront to unscrupulous loan companies for a loan that rarely materialises. The arrangement fee is never returned and even if the loan does arrive, it is less than the agreed amount, with a high rate of interest.

Evidence from Citizens Advice Bureaux around the country shows that the loan companies target people who can't get loans from regular sources, often people with a poor credit rating and on a low income - in other words people who really can't afford to lose the arrangement fee.

The loan companies operate the scam by placing adverts and promotional literature in local papers, the internet and by conducting unsolicited mailings and telephone calls. They lure in people who have credit problems and offer them a solution to their money troubles.

People are invited to apply for a loan of up to £10,000 by giving their bank details and enclosing a cheque for the arrangement fee, which can be between £30 and £60. In a further twist when the cheque doesn't arrive borrowers have the option to call a costly premium rate telephone number to resolve the matter, usually to no avail and leaving people further out of pocket.

Peter Tutton Social Policy Officer at Citizens Advice makes the point that these conmen 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.

"If the loan advertisements do not mention an arrangement fee but suddenly request a fee on application, be very wary. If you are asked for an advance payment alarm bells should ring - avoid at all costs firms who ask for money up front," says Tutton.

Click here for a list of low rate loans available without arrangement fee