National charity Citizens Advice is warning people desperate for a loan to beware of companies offering fake loans for a fee.

The companies often prey on people who are already in debt and desperate for a way out. Once you've parted with your money it's very hard to get it back. So how do you know if you're dealing with a bogus loan company?

The fake loans are advertised on the internet or sometimes offered in a cold call or text. The sales pitch lures victims in with the promise of quick and easy cash on favourable terms.

They are persuaded to pay money upfront as a set-up fee - sums reported by Citizens Advice Bureau clients range from £35 to £2,000 - and often asked to hand over their bank account details too. The loan they have been promised then fails to materialise, the loan company often can't be contacted, and the money already paid is usually lost for good.

The targets are people in debt or with poor credit histories who usually find it hard to borrow money from mainstream lenders.

Cases reported recently by Citizens Advice Bureaux include a man with debts and a compromised credit record who had been refused a loan. He was emailed by a company offering him an immediate guaranteed loan of £20,000 at 10.9%APR. When he phoned them to take up their offer he was asked to pay £70 upfront. He paid this on a card and was told that the money would be in his bank account within 3 days, and paperwork would be sent. None of this has happened and he feels that he may have been scammed.

Citizens Advice fears that the looming public sector cuts could result in cutbacks in local advice and trading standards services which people turn to for help in these situations. "Rogue traders and rip offs which thrive in recessionary times could be off the hook if this happens," it said.

Citizens Advice Director Teresa Perchard added: "In the recession loans can be hard to get and people falling into debt or unable to get mainstream credit are being targeted with ads and direct contacts offering loans that really are too good to be true. We are seeing people who have lost hundreds of pounds they can ill afford after paying fees in advance for a non-existent loan. Some have also had their bank accounts raided after handing over their account details.

"Our advice is that once you've parted with your money there is little chance of getting it back, so we urge people to be very wary of signing up for loans that require a payment upfront - the chances are this is a scam. You can get free, confidential independent and expert advice on credit and debt from any Citizens Advice Bureau. If you have already paid money up front, get advice, and report your experience to your local Trading Standards department."

Citizens Advice top tips on fake loans:

* Never pay money upfront
* Never give out bank account details to cold callers
* Be very wary of cold calls offering loans, and internet sites offering quick and easy credit
* If it looks too good to be true it usually is
* If you need credit, shop around, use a trusted source and always check the paperwork
* If you've already paid money upfront for a non-existent loan, inform Trading Standards. The Consumer Credit Act says that all but £5 of any brokerage fees should be refunded if no loan is taken up within 6 months.
* If you suspect a scam or fraud, report it to Action Fraud 0300 123 2040, the National Fraud Authority's reporting line.
* Get free, confidential, independent debt advice from any Citizens Advice Bureau (go to the website for more information and contact details).