BORROWING ZONE - Borrowing guide

Gaining an understanding of UK loans is a highly useful exercise. From time to time, we all need to borrow money. This may be for investment or for personal expenditure .

Providing our reason is well-considered and we select a suitable loan, borrowing can help us improve our financial security and quality of life. On the other hand, borrowing for the wrong reasons, or using the wrong type of credit, can lead to financial difficulties and stress. It is important to consider if you should borrow.

Before you decide to borrow for investment purposes, you should ask yourself whether or not your overall financial security will be improved as a result of the transaction. If the answer to this question is yes, then you may have a sound reason to borrow. Examples may include borrowing to invest in a venture where the returns will cover the cost of borrowing, borrowing to educate yourself which in turn would help you to get a better paid job or borrowing to buy a car to get to work.

Before you decide to borrow for personal expenditure, you should ask yourself the following two questions; can you fund the borrowing from your personal spending budget and will the loan be repaid before the life of the purchase has expired? For example, borrowing in order to purchase a stereo may be justified if its life is longer than the term of the loan. Borrowing in order to purchase a holiday may be justified if you can repay the loan before you need to take another holiday.

If you do not have a sound reason for borrowing, do not borrow. If you do have a sound reason for borrowing, you need to decide if you can afford to make the repayments, otherwise known as servicing the loan. To establish this, you need to decide on the most suitable form of borrowing, and then compare the cost of the repayments to your disposable income.

Read the next article of this series

Read a basic guide of this market

notice . . .