Before you agree to borrow money, whether it’s in the form of a bank loan, credit card, or you’re borrowing money from friends and family, there are some important things you should consider first.
Is It a Want or a Need?
As the cost of living continues to rise, while wages remain stagnant, it is important to ask whether you actually need the product or service, or if you want it. Figuring out whether it’s essential or not will help you curb your spending.
For big ticket items that aren’t a need, but are a desire, you should take at least a month to make your decision about whether to buy it or not. Chances are by the time the month is up, you’ll have moved onto wanting something else. Giving yourself that extra time, you may also find that you’ve been able to save up enough money to pay for it outright or reduce the amount you need to borrow.
Equally, if you need a particular item, it’s worth thinking about other ways to pay for it. Can you buy it second-hand or can you find it on a free recycling website?
Is There Another Way to Finance?
If you can wait and save-up instead of financing, you’ll end up saving more in the long-run too. Borrowing money means you have to pay back an additional percentage of the amount borrowed as a “fee”.
It’s worth taking the time to figure out how much you can save per week or per month, and then work out how long it would take you to save for the thing you’re after.
How Much Can You Afford to Repay?
If you definitely need to borrow some money, and you’re sure you can repay it, there are a number of important factors to consider.
You should be realistic about how much you could pay if your mortgage or rent increased, or if you had to spend more on things like energy bills. You should also consider what you’d do if you were made redundant.
Choosing the Right Loan
In order to ensure you’re getting the deal that best suits your circumstances, you should ensure you choose the right type of credit or loan for your situation.
Whether you need to remortgage your house, or you require a bad credit car finance loan, taking the time to do the research will make sure you’re not left with any nasty surprises.
When choosing the right loan type, you should consider:
- Interest rate and APR
- How much you’ll repay in total
- Any penalties for missed or late payments