Moolr.co.uk | Short term loans

Deciding How Much To Borrow

Many of us when we look to borrow money overlook many key issues in the process, including the rather basic detail of deciding how much to borrow. We take a look at what is involved.

Avoid Unnecessary Borrowing

Some consider a loan as free money, at least in the short term. In a way it is, but at some point you will have to pay it all back. And every pound you borrow will attract interest charges. So it is vital that you borrow only what you absolutely require. Avoid the temptation to add a bit extra on so that you can have a treat. This is a terrible idea. 

Alternative Options

It would be remiss of us not to mention that loans are often not the best idea for someone requiring extra capital. They are a great product, but only in certain circumstances. Like any financial product, they can be abused and misused. First off, check if you need to borrow at all. You may be able to make savings in your life that could cover what you need. Or consider extra earning opportunities, if that is a possibility. If you are sure you need to borrow, then there are other alternatives to loans. Look at what is on offer for credit cards. And though it can be an awkward conversation to initiate, think about whether you could borrow money off friends or family. 

Deciding How Much To Borrow – Loan Options

The key is to borrow what you can afford. And by afford, i mean what you can afford to repay on a monthly basis. If making repayments is potentially troublesome, you should not even consider a loan. But if comfortable with a loan, you must decide how long you wish to make repayments for. This may influence the amount you decide to borrow. It should be noted that sometimes lenders will restrict the amount someone can borrow due to credit report scores. So you may have to borrow less than is ideal.  We deal with loan repayment lengths in our previous article.

Deciding How Much To Borrow – Work Out Your Finances

As we advise in multiple articles, sit down and in a spreadsheet (or app) list all your expenses. List what comes in and what goes out. Consider if your circumstances are likely to change in the foreseeable future too. See if you can make savings that reduces the need for a loan. Or at least reduces what you need to borrow. And then calculate what you can afford to make in monthly repayments. This is your starting point for deciding what you can comfortably afford to borrow. 

Moolr.co.uk | Short term loans

 

Debt-To-Income Ratio

Your debt-to-income ratio is the percentage of your income you spend on repayment of debts such as credit card payments, an auto loan, student loan, mortgage, etc. Your debt-to-income ratio shows how much money you spend monthly repaying your debts. If you earn £3,000 every month and pay debts amounting to £1,000 per month, your debt-to-income ratio is 0.33 (33%).  Lenders have varying requirements depending on the type of loan you desire. For long term loans, most lenders require all your debt commitments to be 0.36 or 36% or below. 

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