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How to Borrow Money Safely: Avoiding Scams & High Fees

Writer: Smart With Money TeamSmart With Money Team

Borrowing money can be a practical solution for covering unexpected expenses, funding large purchases, or consolidating debt. However, it's essential to borrow safely to avoid scams and excessive costs that can lead to long-term financial struggles. This guide covers everything you need to know about borrowing responsibly while minimising risks.


Safe borrowing tips – avoid scams and high fees when borrowing money.

Understanding Your Borrowing Options


Before taking out a loan, it’s crucial to understand the different borrowing options available. Each has its pros and cons, so choosing the right one depends on your financial situation.


1. Bank Loans


Traditional banks offer personal loans, often with lower interest rates for those with good credit. Benefits include:


  • Fixed or variable interest rates


  • Structured repayment plans


  • Higher borrowing limits


2. Credit Unions


Credit unions often provide more favourable loan terms than banks, especially for members with average credit scores. Benefits include:


  • Lower interest rates


  • Flexible repayment options


  • Lower fees compared to traditional banks


3. Credit Cards


Credit cards can be useful for short-term borrowing if you can repay the balance quickly. However, high interest rates can make them expensive. Consider:


  • 0% interest introductory offers


  • High APRs after promotional periods


  • The risk of accumulating debt quickly


4. Peer-to-Peer (P2P) Lending


P2P platforms connect borrowers with individual lenders, often providing competitive rates. Consider:


  • No physical bank involvement


  • Interest rates based on creditworthiness


  • Varying lender reliability


5. Payday Loans (Avoid if Possible)


Payday loans offer quick cash but come with extremely high interest rates and fees. These should be a last resort due to:


  • Interest rates exceeding 1,000% APR


  • Short repayment periods leading to a cycle of debt


How to Borrow Money Safely


1. Check the Lender’s Credibility


Before applying for a loan, ensure the lender is reputable. Look for:


  • Authorisation by the Financial Conduct Authority (FCA)


  • Positive customer reviews and ratings


  • Clear terms and conditions with no hidden fees


2. Compare Interest Rates and Fees


Interest rates and fees significantly impact the cost of borrowing. To find the best deal:


  • Use comparison websites to review different lenders


  • Look at the Annual Percentage Rate (APR) rather than just interest rates


  • Avoid lenders charging excessive origination or prepayment fees


3. Avoid Loan Scams


Scammers often target people in need of quick cash. Warning signs include:


  • Upfront fees before loan approval


  • Unlicensed lenders not registered with the FCA


  • High-pressure tactics pushing immediate action


  • No credit check offers, which are often predatory


4. Read the Terms and Conditions Carefully


Many borrowers fall into traps by not reading the loan agreement. Look for:


  • Interest rate changes after a certain period


  • Early repayment penalties


  • Extra fees hidden in the small print


5. Only Borrow What You Can Afford to Repay


Overborrowing can lead to financial difficulties. Consider:


  • Your monthly budget and expenses


  • The total cost of repayment, including interest


  • The impact on your credit score if you miss payments


Red Flags When Borrowing Money


1. Too-Good-To-Be-True Offers


If a lender promises guaranteed approval regardless of credit history, be cautious.


2. Unsolicited Loan Offers


Legitimate lenders do not send random emails or texts offering loans.


3. No Physical Address or Contact Information


A lack of verifiable contact details is a major warning sign.


4. Requests for Upfront Payment


Scammers often ask for ‘processing fees’ before issuing a loan—this is illegal in the UK.


Frequently Asked Questions (FAQs)


Is it safe to borrow money online?


Yes, as long as you choose a reputable, FCA-regulated lender. Always check reviews and read the terms before agreeing.


What is the safest way to borrow money?


Borrowing from banks, credit unions, or FCA-authorised lenders with clear terms and reasonable interest rates is safest.


Can borrowing money affect my credit score?


Yes, every loan application can impact your credit score. Making timely payments helps improve your rating, while missed payments can lower it.


Are payday loans ever a good idea?


Payday loans should be avoided due to their extremely high interest rates and fees. If you need emergency funds, consider alternatives like credit union loans or overdrafts.


What should I do if I fall victim to a loan scam?


Report the scam to Action Fraud (UK’s national fraud reporting centre) and the FCA. Avoid further contact with the scammer and monitor your financial accounts for suspicious activity.


Final Thoughts


Borrowing money safely requires careful research, comparing options, and understanding potential risks. Always ensure your lender is FCA-regulated, read all terms carefully, and borrow only what you can afford to repay. By following these guidelines, you can avoid scams and high fees while making responsible financial decisions.



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Additionally, all content provided on SmartWithMoney.co.uk is for informational purposes only and does not constitute financial advice. Please seek independent financial advice before making any financial decisions.

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