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What you need to know before borrowing money

What you need to know before borrowing money

If you are looking to extend your credit, it’s best to go in with your eyes open and all the facts in hand – here are four fundamental rules to keep you safe

borrowing money finances


Life’s challenges and opportunities tend to come in waves, and some of them require more financial outlay than others. Whether you are applying for a mortgage, looking for finance for a new car, or even just need a short bridging loan to get you to the next pay day, there will be many times in life you need to borrow money. 

Borrowing money can be stressful, especially if you have a time-sensitive financial issue. However, it is important that you go into any new financial agreement with your eyes open and all the facts at hand. Making a poor financial choice can have long-lasting impacts that can often lead to worse monetary situations. 

To help you prepare, here are four fundamental rules you should take into consideration when it comes to borrowing money. 

Shop around for a loan provider 

When you need a loan, it can feel as though anyone willing to approve your request is a win. However, take a moment to slow down and look elsewhere. You don’t need to take the first deal offered to you, and you might just find that the lowest hanging fruit – such as payment plans offered by retail staff – isn’t always the sweetest. Consider factors such as the annual percentage rate (APR). Though lower monthly payments can seem attractive in the short term, you could end up paying more overall. Therefore, if your budget can accommodate it, it might be best to stretch yourself a little when it comes to repayments so that you end up with a better deal long term.

Make sure you understand the Ts&Cs

Many contracts are written in financial jargon that can be hard to understand, but if you see something in the terms and conditions of your loan agreement that you don’t understand, go and look it up. You need to know what you are signing up for. A good example of this is an unsecured loan versus a secured loan. If you take on a secured loan it means that you could lose your home if you don’t keep up the repayments, whereas this won’t happen with an unsecured loan.

Find out what’s at the end of the interest-free loan rainbow

In truth, there is likely to be a pot of gold, however it won’t be you pocketing it but the loan provider. Interest-free loans, such as those offered by Klarna, can seem really attractive, and are a great way to borrow money – but only if you manage to pay them back within the agreed window. Often these types of loans have enormous rates of interest beyond the interest-free window, so find out what they are. Payment holidays should be similarly scrutinised, as often these can lead to you paying more interest in the long run, and when it comes to credit cards, try to pay at least 10% of the balance back each month rather than the minimum payment, otherwise you’ll never clear your debts.  

Be realistic about your repayment schedule

Though it can be tempting to take on an ambitious repayment schedule in order to secure a good deal on APR, if you can’t meet the monthly repayments, you will just find yourself in more debt. Take time to sit down and plan whether you can afford the extra outgoings, and also consider the period of repayment – are your earnings going to remain constant over that time? This consideration is especially valid if you want to accept a mortgage with a variable interest. A good rule of thumb with this type of fluctuating loan is to work out whether you could still pay your mortgage if the interest rate goes up by 2%. If you couldn’t, perhaps a fixed rate mortgage is a better option for you. And if you ever do find yourself in financial trouble, try not to borrow more money to pay off existing loans. Robbing Peter to pay Paul, as the old idiom goes, rarely ends well. 


You can find out more helpful tips on are articles page or on our recourses page.

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