Which Fees Should Set Alarm Bells Ringing?

When it comes to getting credit from a credit card provider or from a loan company, you may be asked for certain fees as part of the initial application or paying out process. Some of these are completely normal, and although you can bypass them by going directly to the lender, they’re not illegal. However, some will fall foul to illegal fees which shouldn't be charged, and because there is not enough information out there to educate everyone on their rights when taking out credit, these victims can sometimes not even realise that they have been left out of pocket until it’s too late.

Upfront Fees

When searching for credit through a broker, you may be asked for an upfront ‘loan finder’ fee. This is legal, but they’re only allowed to keep the full amount if they’re successful in finding you a loan. If you've paid an upfront fee to a broker and they haven’t been able to find you a loan, then they're only legally allowed to keep £5 of your money – the rest they have to pay back to you. There are brokers who won’t charge an upfront fee but who will simply add their ‘commission’ onto the loan amount that you take out, so you’ll pay this over the course of your loan term. In most cases, it doesn't affect your payments by very much and you’ll be told the full amount that you’ll have to pay before making any final decisions.

Loan Payment ‘Proof’ Fees

If a lender or broker asks you to pay them the first month’s instalment for a loan to prove that you can, and to confirm your identity then don’t deal with them. This is not usual practice and is often used by fraudsters to con people out of cash. If you haven’t had the loan paid out to you, then don't pay any instalments towards it. There have been cases where people have been duped out of hundreds of pounds because they've sent money to an account they thought was a lender, was told that it didn't work and to send it again, and then the ‘lender’ has disappeared with the cash, leaving the applicant without a loan and a lot of money out of pocket.

Western Union Transfers

If you are asked to transfer money via Western Union to an account to pay for fees or for a loan instalment, then this should set alarm bells ringing. Legitimate lenders and brokers should have a dedicated secure payment system in place. Fraudsters use Western Union because the money that is wired is not usually very traceable, meaning that they can be paid without the risk.

How to Avoid These

Before handing over any personal detail or money to anyone when looking for a line of credit, you should check that the lender or broker is legitimate and that they are registered to trade in the UK. Check that they are registered with the Financial Conduct Authority and search online reviews to see what experiences others had with them.