Over £3.5 million was lost to frauds last year where people were tricked into paying up-front fees for loans that never arrived, the City regulator has said.
The Financial Conduct Authority (FCA) said loan fee fraud is a growing threat - and reports to its consumer helpline have surged by 44% between 2016 and 2017.
Victims of loan fee fraud are often targeted while searching for loans online and are offered a loan by a fraudster.
The scammer tells the victim they have to pay an up-front fee for the loan which they never receive.
After the first payment is made, victims are often persuaded to make more payments - and last year the average loss was around £740, the FCA said.
The regulator said figures show that in 2017 there were over 4,700 reports of loan fee scams made to Action Fraud.
Scammers target the most financially vulnerable in society, people on lower incomes and with low credit ratings, who have limited access to mainstream credit, it warned.
Fraudsters have a range of genuine sounding reasons for asking for a fee - claiming it is a deposit, admin fee or insurance for people with low credit ratings.
The FCA said people should be wary if they are asked to pay an up-front fee for a loan as it could be a sign of a scam.
Other warning signs include being asked to pay in an unusual way - such as by iTunes vouchers or a money transfer service; being put under pressure to pay quickly and being asked to pay several fees.
There are legitimate loan brokers who charge fees in advance of providing their services and are authorised by the FCA.
To avoid scams, people should check they are only dealing with authorised firms from the FCA register.
Mark Steward, executive director of enforcement and market oversight, FCA, said: "We're seeing an increasing number of cases of loan fee fraud reported to us...
"Before applying for a loan always check who you're dealing with, be sceptical, make sure the loan provider is authorised by the FCA. Check our register at fca.org.uk."
Suspected loan scams can be reported to the FCA at www.fca.org.uk/consumers. Fraud should also be reported to Action Fraud - www.actionfraud.police.uk