How to Work Out If Borrowing Money is Affordable for You
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How to Work Out If Borrowing Money is Affordable for You

How to Work Out If Borrowing Money is Affordable for You

Borrowing money can be difficult to avoid completely these days – if you want to make a large purchase like buying a house, for example, then chances are you’re going to need a mortgage. Car finance, credit cards, and even short-term credit to cover emergency expenses are all other examples of popular borrowing that can be hard to avoid, along with the fact that many necessary items – like appliances and home furniture – come with options to pay monthly that tend to be more manageable for the majority of people. If you’re considering borrowing money for any reason, then it’s important to make sure that you are in a comfortable position to afford any monthly repayments.

Be Clear on Your Income and Expenses

Whether you’re considering borrowing a lot of money to fund a high value purchase like a new car, or are dealing with an emergency expense that you need short-term credit for, putting together a household budget first will help you determine whether or not taking on this new credit will be affordable for you. Start off with your monthly income and then go through all the expenses that you pay out each month, including your rent or mortgage, utility bills, current loan repayments and any other monthly expenses. You might want to use this opportunity to see where you can save money by cutting out any expenses that you don’t really need, like a gym membership you barely use or subscriptions that you can go without.

Shop Around

Getting a loan or line of credit can be a lot like anything else – don’t just go with the first one that you find; it usually always pays to shop around and try and find the best deal. Financial comparison sites are a great place to start; they will provide you with details of loans, credit cards and other types of finance including the interest rates, eligibility requirements, and more to help you determine which is the best choice for you. In addition, many will offer to check your eligibility as you go along, giving you a clearer idea of which credit options are going to be the most suitable.

Think About Your Current and Future Financial Circumstances

Always give some thought to your personal financial circumstances before you go ahead and apply for a new line of credit, whether you’re getting a new car or laptop, or are looking into small, short-term payday loans from a lender like LoanPig to cover unexpected house repairs. For example, if you’re working on a six-month contract and aren’t sure what’s going to happen when that contract ends, don’t take out a loan that you’ll need to repay for two years – only borrow when you’re sure you’ll be able to make all the repayments.

Finally, depending on what you discover when you use these options, it may be worth looking into alternatives. If you don’t need the cash right away, then you might want to consider setting up an emergency fund – paying what you can afford into a savings account each month to cover future unexpected expenses. Peer-to-peer loans, or borrowing from friends and family can be useful if you’re unable to get conventional credit.

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