An overdraft can be an expensive way to borrow compared to some other borrowing methods. This means that it is important for us to be able to make the right choice when it comes to borrowing meaning that we will get the right loan for our needs which provides good value for money. Therefore, when you use a particular loan is really important. It is well worth asking yourself a selection of questions before taking out a loan, before you choose to do so.
Do I Need to Borrow?
It is a good idea to start by asking yourself whether you actually need to borrow any money at all. You may find that it is not really necessary. Consider what you are using the money for and whether it is something that you will be able to wait for or save up for, rather than borrowing the money to pay for it. It could be a good idea to also think about whether you could cut back elsewhere so that you can afford it rather than borrow. The reason for this is that you will need to think about the fact that borrowing costs money and if you can save money by not borrowing then this can be a great thing. It is always good to avoid spending money unnecessarily if you can.
How Much do I Need?
If you do decide to borrow then you will need to think about how much money you need to borrow. This will differ and depend on the each think that you are buying. It is a good idea to make sure that you think about whether you will be able to put some money towards it or whether you will need to borrow all of the money to pay for it. It is also important to resist the temptation to borrow more money that you need. You may feel that it will be a good idea to borrow a bit extra and then you will have some to spend on yourself, have a treat or perhaps to keep by ‘just in case’. This is not a good approach though because you will find that it will be expensive as you will have to pay interest on the money that you have borrowed and it is better to borrow a minimum amount so that you do not have to pay so much interest on it.
How Much am I Prepared to Pay?
It is also a good idea to think about the total cost of the loan and whether you are prepared to pay that much money for one. It is not always that easy to calculate but look at the interest rate and think about how much you are likely to borrow and for how long and you should be able to calculate it. Think about whether you think that you will get good value for money from the loan or not.
Can I Repay it?
It is also extremely important to think about whether you think that you will be able to repay the loan. It is a good idea to make sure that you will know exactly how much you will need to repay so that you can calculate whether you will be able to afford to repay it. With an overdraft you will not need to repay it on a certain day but it will get repaid when you put money into the account. The longer you leave it unpaid the more expensive it is. You need to therefore be sure that you can repay it quickly and also that you will