Working out what you need

Before you apply for a loan, you’ll need to decide how much you want to borrow and how long you want to borrow it for. Here are some things to think about before you apply.

It probably seems like an obvious question, but if you’ve got money to spare elsewhere you may not need a loan at all – or at least, you might be able to reduce the amount you need to borrow. It might not be prudent to take money from long-term savings, but if you do have money that’s not committed to another goal consider whether you could use it instead of borrowing.

It could be cheaper too – if the interest you’re earning on your savings is less than the interest you pay on any money you borrow, it will cost you less in the long-run.

If you don’t need the money now, it could be a good idea to save for a little while to raise some or all of what you need. It means you could need to borrow less, making it cheaper.

Rather than taking out a new loan, you may be able to borrow money by taking out an overdraft on your current account. This could be simpler to arrange and might even cost less – but do make plans to pay it off, or you’ll end up paying a lot of interest in the long term.

Some mortgages also allow you to ‘withdraw’ money by adding to the total you’ve borrowed. Mortgage debt usually has a low interest rate compared to a personal loan, but remember that this debt is secured against your home – if you can’t keep up repayments, it could be repossessed.