Do I really need to borrow money?

Before you go ahead and sign up for a loan, a credit card or any other type of financial aid, it makes sense to think about whether you really do need to be borrowing money at all. It is something people do not put much thought into nowadays, they just think “I need money quick” without thinking whether they could just make some changes in their lifestyle to be able to afford whatever it is they are wanting to buy. At economically uncertain times, it is understandable why people may not stop to think.

In this guide, we will be posing questions to you so that you can determine whether you really are in need of borrowed money. To get you going, first ask yourself these important questions:

• Do you need to spend the money?– what is the loan of money for? Is it really necessary?
• Do you have other ways of financing the purchase you are wanting to make? – in the case of something like a house, the answer is probably no. But for smaller purchases, you may find that a loan is unnecessary.
• Will you be able to pay back the money that you are planning to borrow, plus interest?

Do you really need to spend the money at all?

Stop and question whether you have the tendency to make purchases based on impulse. If this is the case, you should give yourself a period between seeing the item and actually going through with a transaction. This could be 2 days or a month. You may find that after a period of time, you stop thinking about the item and you’ve saved yourself some money and avoided having to take out a loan to finance it. If you still believe that the purchase is necessary, then you can start to take the next steps into doing so.

Certain people who take out loans or credit cards do it without really thinking whether they can afford to do so. This may be because they feel as though they have no other option, but that isn’t always the case.

You should ask yourself if you can wait until you can actually afford to outwardly buy the item without having to go down the borrowing route. Is there another way of getting something you need, such as getting it second-hand or finding it on a website like eBay or Gumtree.

If you have determined that you do not really need the money today, then consider making it a priority to commit to saving up for that item each month rather than getting into debt.

What if you do decide to borrow money?

If you know that borrowing money is definitely the best option for you and you are sure that you will be able to repay it. There are a number of important things that you should take the time to consider.

Firstly, how much can you actually afford to repay? It is true that almost two-thirds of people clear their credit card bill in full each and every month. Even if you find yourself in a position where you cannot pay the full amount, do not just pay the minimum amount, rather choose an amount which you can really give back.

Before spending, it is important to work out a budget as to how much you can afford to pay back to the lender or provider each month. This will affect which borrowing option is best for you, whether that be a credit card of a loan. Make sure you are always realistic about how much you can repay and take into account putting some money aside in case of an emergency or unforeseen circumstances, such as a pay cut or an increase in your bills.

Choosing the right kind of credit

So, you are sure you want to borrow money, but how and from where? You will need to determine the right kind of credit for your own personal situation. If you do not, you could find yourself paying out more than you really need to.

You should always shop around and look at comparing deals before you commit. When doing this you should look at things like:

• The APR and the interest rate
• How much you will be required to pay in total at the end of the agreement
• What are the penalties for missing a repayment or for late repayments
• The cost per month or per week and whether this may vary or whether it is fixed.

You need to think about whether a loan or a credit card will be the best type of credit for you. You may receive more flexibility with a credit card, but if you cannot pay back what you spend on it then you can get into massive amounts of debt. You can get 0% interest credit cards which means that you only pay back exactly what you spend on it.

Loans will always come with interest, but they are far quicker and you can often take out a much larger sum of money via a loan. In some cases, you will have no choice but to opt for a loan, such as when you are purchasing a home – this is not going to be possible for most of us without a mortgage. However, if you are purchasing something smaller, you may need to weigh up whether a loan is necessary for that item or whether it can simply be put on a credit card.

You may find it harder to get a loan or a good deal on a credit card if you have poor credit, but there are options out there for you still, such as a collateral loan or a guarantor loan. These allow people with poor credit to take out a loan by either attaching collateral to the deal or having someone with a good credit rating co-sign the agreement and take responsibility for it should you fail to pay the loan back.