Questions you need to ask yourself prior to borrowing money

If there is something we have come to accept as part and parcel of life, it has to be borrowing. I mean, it is something that you are bound to do at some point of life. With emergencies cropping up at the most inopportune of moments, we can say without any shadow of a doubt that borrowing cannot be wished away. However, what you need to be conversant with is that borrowing is not a leisure activity and if not handled well can indeed get you into cycle of debt. You need to be prudent with how you manage money you’ve borrowed and ensure that you stay on top of repayments.

That said, prior to borrowing money, there are a number of questions you need to ask yourself.

What’s my credit rating like?

Believe it or not, the state of your credit rating determines whether you get approved for a loan or not, whether you get affordable interest rates or not and so on and so forth. If you have a good credit rating, you will enjoy affordable loans compared to if you have a poor credit rating. The logical thing to do is therefore to check your credit rating and take measures to improve it prior to applying for a loan.

Why do I want to borrow?

This is a very important question especially when you are in a dilemma as to what type of credit you should go for. With so many different types of credit, a bad decision could actually put you into a financial quagmire sooner than you expect. For instance, if you simply want say 500 pounds to repair your car, it would be foolhardy to go for a logbook loan and use your car as security. The most favourable type of credit in this regard would be a doorstep loan or even a payday loan that can be cleared within the next couple of weeks. Alternatively, if you wanted a loan to inject more capital into your business, a logbook loan would be the most ideal considering that you are entitled up to half the value of your car. A doorstep loan whose maximum borrowable amount is 1500 pounds wouldn’t be ideal in this case.

How long am I willing to borrow?

If you are looking to borrow in order to buy a home, then a mortgage with a repayment period of 30 years is the most ideal. Consequently, if you are cash strapped and your pay check will be ready in two weeks, it is advisable that you go for a payday loan which usually has a 30 day repayment period. If you simply want a short term fix, the logical thing to do is go for short term credit facilities. On the other hand, if you want a huge loan with a longer repayment period, it would be foolhardy to go for a payday loan. The logical thing is to go for a personal loan that gives you flexibility in repayment over a number of years.

Do I have security?

Without a doubt, this is a very important question especially when you are looking to borrow a substantial amount of money. If you have a car for instance, you can opt for a logbook loan that basically accepts a car as security. In a situation where you don’t have security, a guarantor loan may suffice provided that you have a person with a good credit rating willing to guarantee you the loan!