The Steadfast Guide to Money

Loans

If you're thinking of borrowing money, think long and hard. A loan can rapidly become a millstone around your neck which will have grave consequences if you should get into deep water. Here are a few questions which might help guide your thinking:

Frequently avoided questions:

Can I wait?

It's far better for most things to wait and save up before you buy. With interest on most savings accounts currently exceeding the inflation rate, you will probably be in a much stronger position by the time you buy (and probably much clearer in your mind about what exactly you are buying).

Can I afford the loan?

You should have at least enough coming in each month to cover your normal expenditure plus the repayments on your loan. With many loans, the interest rate is not fixed so your repayments will rise if interest rates increase. Work out what your repayments would be if interest rates were to double. Can you still afford this? You may be hoping that your purchase will reduce your costs (e.g. a more efficient boiler or car) but don't count on this too much, just in case the savings prove to be lower than expected.

Do I have a safety net?

Most people find that their expenditure goes up and down from one month to the next. To avoid this feature of life becoming a major problem it is a fundemental requirement to have enough money in a savings account (preferably on instant access) to allow these peaks in expenditure to be ridden without damage. If you are going to borrow money, then this safety net is even more important. Don't borrow unless you have this safety net in place and you are sure it's large enough to cover any unexpected major expenditures (such as a repair to your car or house). You really don't want to find yourself unable to make your loan repayment.

Further thinking...

If you've read the above and still feel confident about taking out a loan you might want to seek additional independant advice before going any further, but, at the end of the day, it's your decision. No one else can make it for you.