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6 questions to ask yourself before borrowing money

Sometimes items we think are essential, can turn out not to be that important. Ask yourself, do you really need a new washing machine? Under some circumstances, you could take time to save your hard earned money over a particular timescale i.e. couple of months. As a result, you could possibly find yourself saving more money than planned over a quick period of time due to becoming more motivated to save. If you don’t want to or can’t wait and need to borrow the money, it’s still worthwhile hunting around for the best price using comparison websites and doing your research as it could pay off in the long run.

What is the cost of the loan?

You will find it helpful if you understand exactly what the loan will cost you overall before taking out a loan. Loan cost takes into account certain factors such as:

  • Admin and set up fees;
  • Early repayment fee;
  • Same day money transfer fee;
  • The cost of interest you will be charged;
  • The length of time it will take you to repay (in general, the longer the term is that you want to borrow for, the higher the total cost is);
  • Possible arrears and default charges if you can’t repay on time;

When trying to find the right loan for you, if you are having a hard time working out the loan cost, don’t take out a loan from that lender. Try to do business only with lenders that are up-front about their fees and costs.

Can I afford to repay what I borrow?

You really need to answer this question honestly as you could find yourself facing severe consequences if you can’t afford to pay back the loan. If you can’t set yourself a realistic budget to repay back the money you borrow, then it would NOT be advisable to borrow the money in the first place. Failure to repay a loan on time will cost you more in interest and charges and will seriously affect your credit rating.

Is this loan suitable for me?

When taking out a short term loan, it’s vital to make sure that it’s suitable for you. For example, if the cost of a washing machine replacement is £500 and the maximum amount you can afford to borrow is £300, it wouldn’t be suitable for you to take out the loan, as you would need to borrow from two sources in order to make the purchase. In doing so, you’ll be faced with higher amounts to repay and could damage your credit rating as lenders look negatively upon multiple applications for credit within a short space of time. In these circumstances, instead of trying to borrow money elsewhere, which could result in even more debt if you can’t afford the repayments, go back to the initial issue and look around for the best deal again to see if there is a cheaper option. Alternatively you can review your budget to see whether there are any areas you may be able to cut down for a period of time, in order to be able to repay back more each month.

How fast can I pay off the loan?

If, after you have researched you decide on taking out a short term loan, realistically the main objective should be trying to pay it back as soon as possible. This is why it’s advisable to set yourself a budget, whether it’s weekly, fortnightly, and monthly to ensure to have enough money spare each month to repay the loan.

What happens if I can’t meet my repayments?

It would be worthwhile taking into account the possible long-term effects if say for argument sake you were to be made redundant or on long sick leave. Any late or skipped payments can and will affect your credit rating. However, it’s important to contact your lender early if you suspect you may miss a payment, so they can discuss other repayment options with you.

(c) Bryony Smith

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