Advance-fee loan scams: What they are & how to protect yourself

In 2023, consumers lost more than $10 billion to fraud, a 14% uptick from 2022, and the highest reported fraud losses on record, according to data from the Federal Trade Commission (FTC). Imposter scams, like advance-fee loan scams, accounted for $2.7 billion in losses, the second-highest reported loss after investment scams.^[2]

Advance-fee loan scams can happen to anyone, but typically scammers target people who have poor credit—promising a loan after you pay an upfront fee. Then, they take your money and disappear, with no loan in sight.^[1]

However, you can protect yourself from these fraudsters if you understand how advance-fee loan scams work and what to watch out for. Here’s a closer look at what advance-fee loan scams are and steps you can take to make sure you don’t fall victim.

What are advance-fee loan scams and how do they work?

Advance-fee loan scams are a type of personal loan scam where scammers promise they’ll get you access to credit, like a loan, credit card, or mortgage, after you pay an advance fee—no matter what your credit history looks like. Sometimes the “lender” may also say you’ve already been approved for the loan, but have to pay an upfront fee to access your funds.

Advance-fee loan scammers often buy marketing lists of people who have applied or searched online for payday loans, a type of predatory loan aimed at people with bad credit. Scammers may call or text you, reach you by mail, or market the scam online or through social media.^[1]

How advance-fee loan scams typically work

A company posts an ad online or contacts you by phone, email, text, or social media. Scammers posing as legitimate banks or lenders (that you may or may not already be doing business with) will offer you unbelievably attractive credit financing rates and/or terms. Scammers typically will post ads online, send you emails, or call you with “deals.”
You're asked to pay an upfront fee. Frequently, you’re told that before you can receive financing, you will need to pay “processing” fees or other fees first. You’re told you can easily pay these advance fees by purchasing a prepaid debit card or gift card, using cryptocurrency, or initiating a wire transfer or bank transfer.
The scammer takes your money. Once the scammer has your payment method in hand, they disappear. This could be a completed money transfer or money withdrawal from a prepaid card (they’ll ask you for the number).^[1]

Real lenders vs. advance-fee loan scammers

Trustworthy lenders—like banks and other credit institutions—won’t ever ask you to pay an upfront fee in exchange for the promise of funding before you apply for a loan. While you can often see if you prequalify for a loan and what your terms may look with just a soft credit check, final approval before funding typically requires a hard credit pull.

Advance-fee loan scams aren’t to be confused with the origination fees charged by some lenders. Origination fees are typically a small percentage of the total loan value and deducted when your loan is funded—not before. In some cases, legitimate lenders may require certain fees before they consider your application, like an application or appraisal fee, but they still need to review your qualifications and won’t guarantee approval just because you paid a fee.^[1]

Pro tip: At LendingClub, we’ll never ask you to send any fees or money in advance before you receive your loan proceeds. Also, no loan broker or any other service is authorized to charge fees or request payments on our behalf. Anyone who attempts to charge you a broker fee to facilitate a loan through LendingClub is likely an imposter—not someone who actually works for LendingClub.

How to protect yourself from advance-fee loan scams

Advance-fee loan scams continue to be on the rise, especially with advances in technology. “Digital tools are making it easier than ever to target hard-working Americans,” Samual Levine, director of the FTC’s Bureau of Consumer Protection, said in a news release. So, it’s more important to stay vigilant than ever before.^[2]

Here are some strategies to help protect yourself from advance-fee loan scams.

Check to see if the lender is registered. Lenders are required to register in the state they do business. Check with your state attorney general or your state’s banking or financial services regulator to see if a lender is registered.
Investigate online. No matter who you're dealing with, always visit the company’s website, look for customer reviews, and check out the company thoroughly with the Better Business Bureau (BBB) or other business accreditation service. You can also do a search for the number the scammer called you from to see if other people have reported scam calls.^[1]
Watch out for imposters. If you suspect the person you’re dealing with is not from the company they say they’re from, hang up and call the company directly (get the number from the official website) to confirm the offer details. You can also check the company's website for information about common scams. Imposter scams are the most commonly reported, and scammers are known to pose as anyone from the BBB to the IRS.
Never send money before receiving credit or a loan. Walk away when you’re asked to pay in advance for a loan offer, credit card, debt relief, or mortgage assistance—whether by prepaid debit card, gift card, cryptocurrency, money wire, or other form of payment.^[1]
Ignore “spammy” calls, texts, or emails. Hang up on cold callers who attempt to guarantee loans and robocalls with recorded sales pitches. These calls are illegal and can be reported to the FTC. Block emails and texts that promise you a loan in exchange for payment.^[1]
Be suspicious if asked to act immediately. Scammers often try to create a sense of urgency to pressure victims into making decisions without fully evaluating the situation or double checking documentation. If you're asked to send money in advance or provide personal information without being given time to do your due diligence, you may want to take a step back and verify the authenticity first. Legitimate financial institutions will never rush you into making decisions.

What to do if you’ve fallen for an advance-fee loan scam

If you’ve fallen for an advance-fee loan scam and paid a scammer, the sooner you act the better. Sometimes you may be able to get your money back, but you’ll need to follow a specific approach, depending on how you sent the scammers an advance-loan fee.^[1] It’s also important to report the scam to the FTC at ReportFraud.ftc.gov—whether you paid them or not. This can help the FTC build cases against scammers and help prevent future scams. Report the scam to the local police department and your state's attorney general, and file a complaint about internet-related fraud with the Internet Crime Complaint Center.^[3]

If you believe you’re a victim of an advance-fee scam by someone posing as a LendingClub employee or its representative, report the scam immediately to LendingClub Member Support at 888-596-3157. We will take in your information, verify, investigate, take any necessary action, and provide you with additional guidance. Learn more about how to protect yourself from scams.

Payment method	What to do
Cryptocurrency	This type of transaction is often not reversible, but you can still contact the company to report the fraud and ask them to reverse the funds.^[4]
Wire transfer (like Western Union or MoneyGram)	Contact the wire transfer company to report a fraudulent transfer, and ask them to reverse the funds.^[4] MoneyGram at 800-926-9400 Western Union at 800-448-1492 Ria (non-Walmart transfers) at 877-443-1399 Ria (Walmart2Walmart and Walmart2World transfers) at 855-355-2144
Gift card	Contact the issuer to report the card was used in a fraud, and ask them to refund your money. You’ll likely need the gift card number (or actual gift card) and the gift card receipt.^[4]
Credit card or debit card	Contact the issuer to report a fraudulent charge and reverse the funds.^[4]
Bank wire transfer	Contact your bank to report a fraudulent transfer and reverse the funds.^[4]
Cash	Contact the U.S. Postal Inspection Service at 877-876-2455 if you sent the cash by mail. They may be able to intercept the package.^[4]

The bottom line

Keeping your money safe from scammers is getting harder each year. The FTC has many initiatives in place to help protect consumers, including a “crackdown” on illegal telemarketing and email spam, providing community education, and reviewing reports received from consumers, law enforcement, the BBB, and nonprofit organizations.^[2]

However, as a consumer, you can take steps to protect yourself by understanding how scams like advance-fee loan scams work. Know the warning signs. If a loan offer seems too good to be true, it probably is. Advance-fee loan scammers know that people who need money are not only more vulnerable, but more likely to believe the scam. Remember, legitimate lenders won’t ever offer you a guaranteed loan or other type of credit just because you paid an upfront fee.^[1]