Loan companies do charge fees, but a legitimate lender will not ask you to send money up front in exchange for a promise of approval. That is the line between a real cost and a scam. Real lenders disclose their charges in writing before you commit, collect most of them at closing, and never guarantee you a loan before checking your credit and income. If someone tells you you’re approved and then asks you to wire a fee, buy gift cards, or send cryptocurrency before the money arrives, you’re being scammed.
What Legitimate Lenders Charge and When
Mortgage lenders have to give you a Loan Estimate within three business days of receiving your application.1Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs That document lists every expected cost, and you can shop it against other lenders before deciding anything.
Here’s the timing rule most borrowers don’t know about. Federal regulations prohibit mortgage lenders from collecting almost any fee before you’ve received the Loan Estimate and told them you want to move forward. The only fee they can take earlier is a reasonable charge for pulling your credit report.2Consumer Financial Protection Bureau. Comment for 1026.19 – Certain Mortgage and Variable-Rate Transactions No application fee, no appraisal fee, no underwriting fee, no “processing” fee. If a lender wants hundreds of dollars from you before you’ve seen a Loan Estimate, something is wrong, regardless of what they call the charge.
Once you tell the lender to proceed, ordinary costs include a home appraisal (usually $300 to $425 for a single-family home) and a credit report fee. Origination fees and points also apply, though they vary by lender and state. Most of these charges get rolled into the loan balance or deducted from the loan proceeds at closing, not collected out of pocket at the start.
Two things to notice about that whole picture: everything is in writing, and the money changes hands after the loan is funded, not before.
How to Tell the Request Is a Scam
The advance-fee loan scam runs on a script. A company advertises loans with lines like “bad credit, no problem” or “guaranteed approval regardless of credit history.” They tell you you’ve been approved, then say you need to send a fee before the funds can be released. They’ll call it insurance, a processing fee, collateral, or paperwork costs. Once you pay, the loan never shows up. Sometimes they come back for a second fee, and a third, until you stop paying.
The tell is the guarantee itself. Legitimate lenders never promise approval before reviewing your credit and income. They check your credit report, verify your application, and make a decision about whether you can repay before extending a firm offer.3Federal Trade Commission. What To Know About Advance-Fee Loans The FTC puts it plainly: no one legitimate will ever ask you to pay for a promise.
Other warning signs travel with the guarantee:
- Payment demanded by wire transfer, prepaid debit card, gift card, or cryptocurrency. Real lenders don’t collect through Western Union or a Bitcoin wallet.
- Pressure to pay in hours, or claims that the rate expires today. Real lenders give you time and documentation.
- No verifiable office address and no state lending license. You should be able to find the company on your state’s financial regulator website.
- They contacted you first, by phone, text, email, or a social media ad, rather than you applying to them.
These operations target people with damaged credit on purpose, because those borrowers are the most desperate for a yes and the least likely to have other options.
Federal Law Bans Advance Fees on Guaranteed Loans
The Telemarketing Sales Rule at 16 C.F.R. Part 310 makes it illegal for any telemarketer to collect a fee before delivering a loan when the company has guaranteed approval or portrayed approval as near-certain.4eCFR. 16 CFR Part 310 – Telemarketing Sales Rule The loan has to arrive before the fee can be collected. The rule covers phone solicitations, and FTC enforcement practice extends it to internet-based solicitations that work the same way. Civil penalties reached $53,088 per violation as of January 2025, and each consumer contact can count as its own violation.5Federal Register. Adjustments to Civil Penalty Amounts
The same rule applies to debt relief companies. They cannot collect a fee until they’ve actually negotiated a specific debt and you’ve made at least one payment under the new agreement. Some advance-fee scams disguise themselves as debt consolidation or debt settlement offers rather than loans, so the ban matters there too.
Credit repair companies are governed separately by the Credit Repair Organizations Act. Under that statute, no credit repair organization can charge or receive payment before fully performing the service it agreed to provide.6Office of the Law Revision Counsel. 15 US Code 1679b – Prohibited Practices If someone offers to fix your credit for a fee and then connect you with a lender, the fee can’t come first.
What to Do If You Already Paid
Move fast. Some recovery methods only work within narrow windows.
- Credit or debit card: call the issuer, report the charge as fraudulent, and ask for a chargeback.
- Bank wire transfer: call your bank immediately and ask them to reverse it. Sooner is better.
- Wire transfer service: call the company’s fraud line and request a reversal. Western Union is 1-800-448-1492; MoneyGram is 1-800-926-9400.
- Gift cards or prepaid cards: contact the card issuer and report the scam. Recovery is less likely, but reporting still helps flag the scammer’s accounts.
Save every receipt, confirmation number, email, and text. You’ll need them for the recovery attempt and for any fraud report you file.7Federal Trade Commission. What To Do if You Were Scammed
Protect Your Identity if You Shared Personal Information
Even if you didn’t send money, filling out a scam loan application means the company now has your name, Social Security number, and probably your bank details. That information can be used to open accounts in your name for months or years. Two tools can shut that down.
A credit freeze blocks anyone, including you, from opening new credit in your name. It’s free at all three credit bureaus, lasts until you lift it, and you can temporarily thaw it when you need to apply for legitimate credit. You have to contact each bureau separately.8Federal Trade Commission. Credit Freezes and Fraud Alerts
A fraud alert is lighter. It tells lenders to verify your identity before granting new credit, but it doesn’t block access to your report. An initial alert lasts one year, is free, and you only have to contact one bureau; that bureau notifies the other two. If you’ve already experienced identity theft and filed a report at IdentityTheft.gov or with police, you can place an extended alert that lasts seven years.8Federal Trade Commission. Credit Freezes and Fraud Alerts
If you handed sensitive information to a scammer, the freeze is almost always the better choice. The alert assumes lenders will follow up to verify your identity, and not all of them do.
How to Report the Company
Gather the company’s name, website, phone numbers, email addresses, the dates of every contact, the amount requested or paid, and the payment method. Save copies of the emails, texts, and any documents they sent. Requests for gift cards, cryptocurrency, or wire transfers are especially useful evidence.
File your report at ReportFraud.ftc.gov. Your report enters the Consumer Sentinel Network, a database used by more than 2,800 federal, state, and local law enforcement agencies. The FTC does not investigate individual complaints or recover your money directly. It aggregates reports to identify patterns and build enforcement cases, and when it wins one, it tries to recover money for affected consumers as a group.9Federal Trade Commission. ReportFraud.ftc.gov FAQs
Also contact your state attorney general’s consumer protection division. State offices can sometimes pursue individual restitution or mediation the FTC cannot, and they may have jurisdiction over local operators the FTC hasn’t reached yet.10Federal Trade Commission. Consumer Sentinel Network