Borrowing and debt
It's important to think carefully when borrowing money. Here are some things to consider before making that decision.
The sensible use of debt can be part of a sound financial strategy. Debt can enable you to enjoy things that otherwise are currently beyond your reach, providing of course you manage your debt arrangements carefully.
Whilst borrowing costs money, this is not always a bad thing. It just means that when you pay it back, you will probably have to pay more than you borrowed unless you have an interest-free arrangement.
We've outlined some key things below to help you when considering borrowing money.
If you have any questions, please call our friendly team on 03300 244612
Before you borrow
Before you borrow, consider your options carefully.
Decide how much you wish to borrow, understand your reasons for borrowing, and make sure you fully understand and can manage your repayment responsibilities.
From time to time, review your debt and look at alternative options, such as re-mortgaging or moving a credit card balance that may make your repayments cheaper or more affordable.
There are many different borrowing options - overdrafts, mortgages, store cards, credit cards and personal loans are the main options. Some come with a structured plan to pay them back, while others are more flexible.
When deciding to borrow money, try to match your reason for borrowing to the right kind of credit. The three core considerations are:
They vary widely - from low single figures – say 2-5% for mortgages - up to 25% or more for some credit cards and store cards. Short-term “payday loans” can have APRs of 300% or more.
The importance of borrowing sensibly
If you don’t keep up your repayments on money you’ve borrowed, it can affect your credit rating. This could make it difficult to borrow money in the future, even if you’re financially secure at the time. Being financially linked with someone with a bad credit rating can affect your rating too.
Different lenders use credit ratings in different ways, so it might be worth trying another lender if you’re turned down by the first. However be aware that too many credit
checks in a short period of time can also have a negative effect on your score.
Checking your credit rating
If any of the information about you is incorrect, you can ask the agency to change it. Credit Reference Agencies don’t decide if you can borrow money: their customers are the lenders, so they want information that’s as accurate as possible.
Work out carefully just how much you need to borrow and how you’ll pay it back - don’t be tempted to round up your income.
Try to minimise the total amount you’ll repay over the life of the loan - this often means choosing a shorter loan period with higher regular payments.
Make sure you can afford regular loan repayments with a bit to spare - missing a payment could affect your future credit rating.
Do make sure there are no errors or mistakes on your credit history that could affect what you can borrow by asking for your credit report from one of the key providers of this service:
If for any reason you are having trouble making your loan or mortgage repayments, do get in touch straightaway with your loan or mortgage lender, who will acknowledge your difficulties and may be able to help. They might allow a short term payment holiday
or be able to extend the term of your loan to reduce the monthly payments due. Each case will be treated differently, depending on circumstances, so it’s important to find out what help you can get.
In addition, there are also many agencies and charities that can advise, including;
If you have any questions about what you've read, please call our friendly team on 03300 244612.
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