Borrowing money is something that many of us choose to do at some point and if you adopt the right approach to taking out finance, you can certainly be smart about money and keep your finances under control.
Ways to borrow
There are a number of ways to borrow money from a quick short term loan to a mortgage for buying your own house.
You can obtain finance in the form of a credit card, a personal loan, hire purchase agreement or maybe an overdraft facility with your bank account. They are all different types of borrowing and have their own unique attractions and advantages, but the principle remains the same in that you are borrowing money and by signing an agreement you are accepting responsibility for paying back the money that you owe.
In order to obtain credit you will often have to pass a credit check and achieve a reasonable credit score that meets the lenders criteria. The credit check will take a look at your past history and how well you managed debt with lenders already and take into account things like whether you paid on time or whether you missed any payments.
A lender will also want to verify your identity and confirm you are on the Electoral Roll and they will also take a look at how much credit you already have and try to decide if your personal finances are stretched or hopefully see that you have borrowed sensibly up to this point. All of this information is collated and translated into a credit score, and if your credit score is high enough the lender will agree to your loan request.
If your credit score is lower than the figure they require then they might refuse to lend altogether or possibly offer you a loan at a higher rate of interest in order to reflect the potential risk of not being paid.
You may decide that you have an urgent need to borrow some money or want to finance a major purchase such as a car or some household furniture. Whatever your reasons for needing the finance the same rules apply in that you should take a sensible approach to borrowing and work out whether you can comfortably afford the repayments.
You should never borrow money on the spur of the moment and the best approach is often to take the time to consider your options and work out your budget before you start applying for any finance. You should also exercise caution if you are thinking of borrowing money in order to pay off existing debts as this may provide a short term solution but may well cost you more than before in the long run.
Your credit rating is the key to successfully borrowing money as and when you need it so make sure that you think carefully before signing any finance agreement, as one missed payment or a bad debt can quickly undo all your previous good behaviour, so do what you can to preserve your good standing and borrow sensibly.
Peter Davis has a passion for numbers. When not balancing the books, he enjoys using his financial career experience to write about controlling budgets and moneyflow.