How to Avoid Payday Loan Scams

Graphic words: payday

Everyone experiences being short of cash at some point and if you’re in need of funds to meet an unexpected expense, you may be considering taking out a loan. But not only is it important to fully understand the emotional and financial implications of taking out a loan, it’s crucial to ensure that you’re borrowing from a reputable company to avoid payday loan scams. The key to safe borrowing is knowing which loan scams to watch out for, as well as how to check that the loan company is legitimate.

Payday loan scams - what should you look out for?

While there are regulated online lenders that approve loans responsibly, there are many disreputable companies who take advantage of customers. A payday loan scam involves a customer being contacted by someone posing as a payday loans company, who generally charges an upfront fee and offers too-good-to-be-true interest rates. In reality, these companies offer loans that are extremely expensive and can often result in borrowers falling into debt.

To avoid falling victim to a payday loan scam, keep an eye out for these three warning signs:

  1. When comparing loan providers, be wary of those that offer guaranteed approval. A legitimate and responsible lender cannot guarantee that your application will be approved without carrying out comprehensive credit checks, where they assess your financial situation and affordability before making a decision.
  2. A company posing as a lender will often offer to guarantee a loan application if an upfront fee is paid first. They may ask that these funds are sent as a wire transfer or some other form of payment that will be hard to recover. If the company is carrying out a payday loan scam, they’ll often disappear once they receive the money, without paying out the promised funds.
  3. One common payday loan scam is when someone calls you pretending to be a debt collector, perhaps threatening you with legal action for a missed payment. The caller may even have some of your personal details, such as your bank account number or address history. However, having this information doesn’t mean that the call is legitimate - it may mean that someone has sold your information to a third party.
  4. Other things to look out for include receiving an email out of the blue that claims your loan application has been approved. Scammers routinely send these out to millions and you never really know who you’re dealing with. You should also avoid sharing your private details with an unauthorised source, as this leaves you vulnerable to identity theft. But don’t worry - there are some things you can do to avoid payday loan scams.

How to avoid payday loan scams

To avoid falling victim to a payday loan scam, you shouldn’t give any money to a lender in order to get your application approved or fast tracked. Legitimate lenders don’t charge fees before approving your application and any one-time fees should only be charged after you’ve been approved and received the funds. While there are legitimate loans that can cost money to apply for, these are typically for far larger sums than payday loans, such as mortgages that you may need to pay a credit check or appraisal for.

You should also never give out any personal information unless you’re sure that the call is legitimate, otherwise you may be subject to identity theft. Identity theft is when your personal information is passed on to identity thieves, or when you submit it to a website that doesn’t adequately protect your details. Information that is commonly found on online loan applications is often very useful when it comes to stealing your identity, such as your national insurance number, date of birth, bank account details, full name and address history.

Compare multiple loan companies. It may be difficult to gauge the legitimacy of a loan company just by looking at the website, but you may be able to spot red flags when comparing multiple websites. Look out for spelling mistakes, poor grammar and unfinished sentences, as well as whether the website lists any contact information.

Check the reviews

Look at customer reviews from a range of sources, such as Trustpilot, and check the company’s social media pages for recent activity. Signs of an illegitimate company include reviews showing a lot of similar information, all the reviewers having very new accounts and a website having very few reviews at all.

Check the FCA register

It’s important to verify that the lender you’re borrowing from is authorised and regulated by the Financial Conduct Authority. The FCA is an independent body that works to protect customers against scams, by ensuring that all lenders are honest and fair. If a loan company isn’t on the FCA register, they may be fraudulent.

Be wary of unsolicited calls, emails and post

Don’t accept a loan offer over the phone and don’t reply to emails with personal information unless you’re sure that they’re from a reputable source. Always check the email address that you’ve been contacted from for spelling mistakes or discrepancies, and look up any phone numbers that you don’t recognise to see what other people label them as.

If you suspect that you’ve been scammed, it’s important to report it to the FCA to prevent others from falling victim. You also need to get in contact with your bank to halt any payments and beware of follow-up scams, as fraudulent companies may call claiming that they can get your money back.

Are payday loans safe?

Payday loans may help to rectify a short-term financial shortfall, as long as customers borrow from a reputable and responsible lender. Before deciding to take out a loan, it's important to consider other lower cost credit options such as asking friends and family for help, taking out a credit card or securing an authorised overdraft. Applying for a loan should be a last resort as they can be expensive, and you should only consider them if you’re sure that you can meet the repayments.

Payday loans are not a suitable solution for long-term debt and you should never borrow more than you can afford to pay back. Responsible lenders will carry out a comprehensive credit check to assess your affordability before offering you a maximum loan amount, but it’s best to only borrow the amount you need to cover a financial shortfall. Failure to meet repayments can negatively impact your credit rating and could lead to you requiring a second loan to cover the cost.

The two main costs you need to consider before applying for a payday loan are the interest and fees. Interest is usually shown as the APR and is spread over all of your payments, meaning you could end up paying less if you pay off the loan early. Fees include penalties for late or missed payments, as well as any charges you may be subject to for paying the loan off early. It’s important to establish how much you want to borrow, how much you can afford to pay and how quickly you can pay the loan back before choosing a provider, to ensure you don’t end up falling into debt.

To apply for a loan online, most reputable lenders will require that customers are over the age of 18, that they own a UK bank account and have a regular income. This allows a loan company to assess your financial record and affordability before making a decision. Be wary of companies that promise guaranteed approval or charge fees for processing your application, as these can be signs of a payday loan scam.

In summary…

Although it may seem impossible avoiding payday loan scams, there are plenty of reputable personal loan providers that offer legitimate loans for customers in the UK. Moneyboat are a UK direct lender who offer transparent and responsible short-term, Instalment and payday loans between £200 and £1,500. If you are looking for a flexible loan solution, get in touch with the experienced team at Moneyboat today.

Moneyboat's service is rated Excellent

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Representative Example: Borrow £400 for 4 months, 4 monthly repayments of £149.37. Total repayment £597.48, interest rate p.a. (fixed) 255.5%. Representative APR 939.5%.Compare Moneyboat loans.

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