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Loan fraud

How to Avoid Loan Fraud

Every year, thousands of people in the UK unwittingly fall victim to the dishonest practices of unscrupulous lenders who commit loan fraud. Unfortunately, the majority of victims tend to be the more vulnerable members of society including inexperienced first-time home buyers as well as the old.  Here are some suggestions to help you becoming a victim of loan fraud:

  • Whatever loan you are looking to take on, make sure you put aside sufficient time to carry out research and shop around. To avoid loan fraud, make thorough comparisons using the information provided by the various lenders. Weigh up the key advantages and disadvantage and consider all the factors such as length of loan, interest rates, and penalties before making your final decision.

  • Do not choose a lender who puts pressure on you to take on a loan by telling you that you will not be offered another loan elsewhere—this lender could very well be linked to loan fraud.

  • To avoid loan fraud, never put your signature to a loan contract or document that has suspicious blank spaces or that contains untrue or inaccurate information.

  • Some corrupt loan fraud lenders will deliberately make alterations to the final agreement. Before signing your contract, check again that the terms and conditions are what you originally agreed to.

  • Never choose to work with a lender who persuades you to lie about your income, employment status, expenses, or the deposit available for down payments in order to get a loan.  This is loan fraud.

  • Watch out for higher-risk loans such as balloon loans, certain interest-only deals, some bad credit loans, and loans with exorbitant pre-payment penalties. If something looks too good to be true, it probably is loan fraud. Try to stay away from such packages.

  • If you find yourself in vulnerable circumstances such as being unexpectedly unemployed through redundancy or illness, be careful about disclosing this type of information as there may be loan sharks out there who are ready to commit loan fraud and take advantage of your misfortune. 

  • Think carefully before deciding to refinance your property time and again; this could eventually lead to you losing your most valuable asset, your home.

  • Beware of unprincipled loan providers who give false appraisals.

  • Do not let any loan provider convince you to borrow more money than you can afford to repay. Be sensible as you are the one taking the risk, not the lender. If you fall behind on your payments, you risk losing everything including your home.

  • Always obtain several quotes from multiple lenders so you know you are being charged a fair interest rate based on your credit history, not on other factors like race or religion.

  • A lot of loan fraud takes place in the form of exorbitant advance fees. If your lender is demanding a large fee upfront, you should avoid this loan fraud provider instantly.


Loan fraud: How lenders can also be victims

Interestingly, loan fraud is not just caused by unscrupulous lenders. Borrowers, too, can commit loan fraud. A good example of this is student loans.

In the UK, the Universities admissions body and the Student Loan Company have revealed the existence of 'fake students'. These are essentially fraudsters committing loan fraud, who apply for student grants by claiming to be eligible students. There are also those who pretend to be trainee teachers who apply for Career Development Loans but have no intention of becoming teachers. Career Development Loans have also been abused by 'training companies' who have been set up under false pretences. Once investigated, it has been revealed that some of these training providers have no students or facilities in place.

Mortgage loan fraud

Of course, mortgages remain the main reason for people in the UK to borrow huge sums of money. In order to own their dream home, more people are now prepared to lie about their earnings and commit loan fraud. Sometimes, borrowers use self-certification mortgages, which are strictly for self-employed applicants, but are increasingly used by others, to secure a larger mortgage than they can afford. 

It can be argued that Sub-Prime Mortgages are a form of mortgage loan fraud committed by mortgage lenders. As the global credit crunch has now painfully shown, these unscrupulous lenders have not acted responsibly in giving out sub-prime mortgages to those who cannot maintain their repayments in the long term. 

Loan fraud and identity theft

Identity theft is the fastest-growing crime in the UK. Identity thieves steal other people's personal and financial details to apply for loans and other types of credit. To help you avoid loan fraud through identity theft, you should ensure the following:

  • Destroy any unwanted bills, receipts, statements, and even junk mail using a shredder.

  • Keep your login details secret to avoid loan fraud.

  • Keep your credit cards and PIN numbers safe.

  • Beware of onlookers when entering using a cash machine or paying by PIN, as they may be looking to commit loan fraud.

  • Do not use passwords which are easy to guess.

  • Make sure that your credit file is up to date and accurate. Look for any unusual activity and keep your eyes out for loan fraud.

  • Be cautious with new transactions. Make sure that you are dealing with a legitimate company before handing over any account details.

  • Keep important documents secure such as your birth/marriage certificates, driving licence and passport, but ideally not all in the same place to prevent loan fraud from happening to you.

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