{"id":55,"date":"2020-07-23T09:51:52","date_gmt":"2020-07-23T09:51:52","guid":{"rendered":"http:\/\/www.wealthatwork.co.uk\/lseg\/?page_id=55"},"modified":"2023-04-03T13:14:26","modified_gmt":"2023-04-03T13:14:26","slug":"borrowing","status":"publish","type":"page","link":"https:\/\/www2.wealthatwork.co.uk\/lseg\/understand-your-finances\/borrowing\/","title":{"rendered":"Borrowing"},"content":{"rendered":"<div class=\"wpb-content-wrapper\"><p>[vc_row][vc_column][vc_column_text]<\/p>\n<p style=\"text-align: left;\">Borrowing money is a necessity for many people, ranging from large purchases such as homes and cars to credit cards for covering holiday spending. The world of borrowing and debt can be confusing and stressful, in this section we aim to help you improve your understanding by looking at 3 key areas: types of borrowing, paying off debt and credit scores.<\/p>\n<p>[\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column][vc_tta_tabs spacing=&#8221;10&#8243; active_section=&#8221;1&#8243; no_fill_content_area=&#8221;true&#8221;][vc_tta_section title=&#8221;Types of Borrowing&#8221; tab_id=&#8221;1596017557269-4e93ae6d-a708&#8243;][vc_column_text css=&#8221;.vc_custom_1599054696254{margin-bottom: 0px !important;}&#8221;]Before you decide that you need to borrow money you should first ask yourself:<\/p>\n<ul>\n<li>Why am I borrowing this money?<\/li>\n<li>Could I save and buy the\u00a0item\u00a0another time?<\/li>\n<li>Can I afford to pay back the money and how much will it cost me?<\/li>\n<\/ul>\n<p>A good way to think about borrowing money is that you\u2019re not borrowing money from the lender, you\u2019re in fact borrowing money from your future self. Is this purchase worth making your future selfless well off? There could be alternatives such as buying an item second hand rather than new or getting a cheaper version of the product.<\/p>\n<p>If you\u2019ve decided that you definitely need the item and you can\u2019t use any savings or pay for the item any other way, then you will need to look at how you should finance the purchase.[\/vc_column_text][vc_single_image image=&#8221;1108&#8243; img_size=&#8221;full&#8221; alignment=&#8221;center&#8221;][vc_column_text css=&#8221;.vc_custom_1680165381479{margin-bottom: 0px !important;}&#8221;]As you can see from the graphic above, rates may vary depending on how you choose to borrow.<\/p>\n<p>When looking at\u00a0borrowing\u00a0money, shop around and compare deals, looking at:<\/p>\n<ul>\n<li>The interest rate and the APR.<\/li>\n<li>How much you will repay in total.<\/li>\n<li>The cost per month and if this is fixed or variable.<\/li>\n<\/ul>\n<p>Some of the most common types of lending are explained below.<\/p>\n<p><strong>Mortgages<\/strong><\/p>\n<p>A mortgage is exclusively used to finance the purchase of a property and it\u2019s unlikely that you\u2019ll be able to finance this type of purchase in a different way.<\/p>\n<p>To learn more about mortgages, buying your first home or re-mortgaging please <strong><a href=\"https:\/\/www.wealthatwork.co.uk\/lseg\/understand-your-finances\/homes-and-mortgages\/\">click here<\/a><\/strong> to visit the topic.<\/p>\n<p><strong>Personal loan<\/strong><\/p>\n<p>A personal loan could be a good idea if you need to make a large purchase and plan to pay back the money over a number of years. Most loans have a fixed interest rate, meaning you agree to pay back a set amount per month for a set period of time. Remember to shop around as the interest rate offered may vary between lenders and more importantly \u2013 so will the total amount you end up paying back.<\/p>\n<p>If you\u2019re looking for a short term loan for a smaller amount, a better option could be a credit card.<\/p>\n<p>For more information on personal loans please <strong><a href=\"https:\/\/www.moneyhelper.org.uk\/en\/everyday-money\/types-of-credit\/personal-loans\" target=\"_blank\">click here<\/a>\u00a0<\/strong>to visit Money Helper.<\/p>\n<p><strong>Credit cards<\/strong><\/p>\n<p>Although credit cards can be a more expensive way of borrowing, they often have zero percent offers on, meaning you don\u2019t pay any interest at all if you pay back the money within the interest free period.<\/p>\n<p>Credit cards work by allowing you to spend up to a pre-agreed credit limit. You will normally get a statement each month, if you repay the money within a certain timescale (normally 28 days, although you could be on a zero percent offer for longer) you won\u2019t be liable for interest. If you do not repay the money within the timescale given, then you will pay an interest rate often over 18%!<\/p>\n<p>When you\u2019re making a purchase on a credit card, you also get protection\u00a0under section 75\u00a0of the Consumer Credit Act for any purchase over \u00a3100. Section 75 means that the credit provider is responsible for ensuring that the goods you have paid for arrive and are not faulty. If either of these scenarios happen and the retailer won\u2019t help you, you can contact your credit card provider to help out under section 75. This isn\u2019t to be confused with insurance or a warranty. To read more on section 75 visit Money Helper by<a href=\"https:\/\/www.moneyhelper.org.uk\/en\/everyday-money\/credit-and-purchases\/how-youre-protected-when-you-pay-by-card\" target=\"_blank\"> <strong>clicking here<\/strong><\/a>.<\/p>\n<p>For more information on credit cards please <strong><a href=\"https:\/\/www.moneyhelper.org.uk\/en\/everyday-money\/types-of-credit\/simple-guide-to-credit-cards\" target=\"_blank\">click here<\/a><\/strong> to visit Money Helper.[\/vc_column_text]<div class=\"aio-icon-component    style_2\"><div id=\"Info-box-wrap-7889\" class=\"aio-icon-box square_box-icon\" style=\"border-color:#d8d8d8;border-style:solid;border-width:2px;background-color:#fcfcfc;\"  ><div class=\"aio-icon-square_box\"><div class=\"ult-just-icon-wrapper  \"><div class=\"align-icon\" style=\"text-align:center;\">\n<div class=\"aio-icon none \" data-animation=\"pulse\" data-animation-delay=\"03\" style=\"color:rgba(51,51,51,0.01);font-size:32px;display:inline-block;\">\n\t<i class=\"Defaults-map-marker\"><\/i>\n<\/div><\/div><\/div><\/div><div class=\"aio-icon-header\" ><h2 class=\"aio-icon-title ult-responsive\"  data-ultimate-target='#Info-box-wrap-7889 .aio-icon-title'  data-responsive-json-new='{\"font-size\":\"\",\"line-height\":\"\"}'  style=\"\">Case Study<\/h2><\/div> <!-- header --><div class=\"aio-icon-description ult-responsive\"  data-ultimate-target='#Info-box-wrap-7889 .aio-icon-description'  data-responsive-json-new='{\"font-size\":\"\",\"line-height\":\"\"}'  style=\"\"><span id=\"E2093\">AJ\u00a0<\/span><span id=\"E2096\">wants to buy <\/span><span id=\"E2098\"> <\/span><span id=\"E2099\">some new furniture <\/span><span id=\"E2100\">for \u00a34,000. He has a deposit of \u00a31,000 and needs to borrow \u00a33,000. If he\u00a0<\/span><span id=\"E2103\">takes a loan out at 13.9% over 2 years his monthly repayment will be \u00a3142.75 and he will pay \u00a3426 in interest in total<\/span><span id=\"E2105\">.<\/span><\/p>\n<p id=\"E2107\"><span id=\"E2108\">Alternatively, AJ\u00a0<\/span><span id=\"E2111\">could take a new credit card out with a 0% offer on new purchases for 24 months. If he\u00a0<\/span><span id=\"E2114\">pays back \u00a3125 per month, he will have the \u00a33,000 paid off within the 24 months and will pay no interest on the money he has borrowed. AJ\u00a0<\/span><span id=\"E2117\">will also get section 75 protection for his credit card purchase, meaning he may be able to get some assistance from his credit card company if something goes wrong with his purchase.<\/span><\/p>\n<p id=\"E2118\"><span id=\"E2119\">This will only work for AJ\u00a0<\/span><span id=\"E2122\">if he pays off his debt within the 24 months. If he doesn\u2019t<\/span><span id=\"E2124\"> it is likely his interest rate will be much more than the 5% charged by the loan.<\/span><\/p>\n<p id=\"E2125\"><span id=\"E2126\">To help you decide on the best borrowing option click the links below to visit Money Helper for the following tools:<\/span><\/p>\n<p><a href=\"https:\/\/www.moneyhelper.org.uk\/en\/everyday-money\/credit-and-purchases\/use-our-credit-card-calculator\" target=\"_blank\"><strong><span id=\"E2128\">Credit card calculator<\/span><\/strong><\/a><\/p>\n<p><a href=\"https:\/\/www.moneyhelper.org.uk\/en\/everyday-money\/credit-and-purchases\/loan-calculator\" target=\"_blank\"><strong><span id=\"E2130\">Loan calculator<\/span><\/strong><\/a><\/p>\n<p><a href=\"https:\/\/www.moneyadviceservice.org.uk\/en\/articles\/compare-the-cost-of-borrowing-gbp5000\" target=\"_blank\"><strong><span id=\"E2132\">Cost comparison article<\/span><\/strong><\/a><\/div> <!-- description --><\/div> <!-- aio-icon-box --><\/div> <!-- aio-icon-component -->[vc_column_text]<strong>Overdrafts<\/strong><\/p>\n<p>Overdrafts are available as either arranged or unarranged, both of which can be an expensive way of lending and should only be used to fall back on in an emergency if you don\u2019t have savings. Recent changes by the FCA mean that banks are changing the way they charge for overdrafts so you should check what your bank\u2019s charging structure is before agreeing to take an overdraft.<\/p>\n<p>For more information on overdrafts please<a href=\"https:\/\/www.moneyhelper.org.uk\/en\/everyday-money\/types-of-credit\/overdrafts-explained\" target=\"_blank\"><strong> click here<\/strong><\/a> to visit Money Helper.<\/p>\n<p><strong>Payday loans<\/strong><\/p>\n<p>Payday loans are not to be confused with regular loans. They are shorter term (often only one or two months) and crucially they charge a much larger interest rate and APR. They are also viewed negatively by most lenders so having one on your credit file can be detrimental if you\u2019re applying for another sort of\u00a0borrowing like a mortgage.<\/p>\n<p>Payday loans are one of the most expensive ways of borrowing and should be your last resort. Not only due to the high interest rates but also due to the behaviours of many payday lenders, often encouraging borrowers to take out more loans resulting in a cycle of debt.<\/p>\n<p>If you\u2019re considering taking a payday loan think of the following:<\/p>\n<ul>\n<li>Do you definitely need the money now?<\/li>\n<li>Could you borrow the money another way?<\/li>\n<li>Do you have friends or family that could help?<\/li>\n<li>Check if your employer offers \u201cSalary Finance\u201d<\/li>\n<\/ul>\n<p>For more information on payday loans please <strong><a href=\"https:\/\/www.moneyhelper.org.uk\/en\/everyday-money\/types-of-credit\/payday-loans-what-you-need-to-know\" target=\"_blank\">click here<\/a><\/strong> to visit Money Helper.[\/vc_column_text]<div class=\"aio-icon-component    style_2\"><div id=\"Info-box-wrap-4575\" class=\"aio-icon-box square_box-icon\" style=\"border-color:#d8d8d8;border-style:solid;border-width:2px;background-color:#fcfcfc;\"  ><div class=\"aio-icon-square_box\"><div class=\"ult-just-icon-wrapper  \"><div class=\"align-icon\" style=\"text-align:center;\">\n<div class=\"aio-icon none \" data-animation=\"pulse\" data-animation-delay=\"03\" style=\"color:rgba(51,51,51,0.01);font-size:32px;display:inline-block;\">\n\t<i class=\"Defaults-angle-double-right\"><\/i>\n<\/div><\/div><\/div><\/div><div class=\"aio-icon-header\" ><h2 class=\"aio-icon-title ult-responsive\"  data-ultimate-target='#Info-box-wrap-4575 .aio-icon-title'  data-responsive-json-new='{\"font-size\":\"\",\"line-height\":\"\"}'  style=\"\">Quick Tip<\/h2><\/div> <!-- header --><div class=\"aio-icon-description ult-responsive\"  data-ultimate-target='#Info-box-wrap-4575 .aio-icon-description'  data-responsive-json-new='{\"font-size\":\"\",\"line-height\":\"\"}'  style=\"\">When deciding where to borrow from, remember to compare the APR of each product not just the interest rate. The APR is the real rate of interest as it includes all costs and fees added to any borrowing, the interest rate does not.<\/div> <!-- description --><\/div> <!-- aio-icon-box --><\/div> <!-- aio-icon-component -->[\/vc_tta_section][vc_tta_section title=&#8221;Paying off Debt&#8221; tab_id=&#8221;1596017557270-7993f2bd-fd63&#8243;][vc_column_text]It is generally advisable to pay off any debt (apart from mortgages) before saving money.<\/p>\n<p>As you can see from the graphic below, saving money while still having outstanding debt can be counterproductive.[\/vc_column_text][vc_single_image image=&#8221;335&#8243; img_size=&#8221;full&#8221; alignment=&#8221;center&#8221;][vc_column_text css=&#8221;.vc_custom_1598006919576{margin-bottom: 0px !important;}&#8221;]Paying off debt can be a long process depending on the scale of your debt. If you have large debts, it can be easy to give up, especially if you\u2019re on a limited budget. Like budgeting, you need to take control of any outstanding debt by creating an action plan to pay it off. First, to create your action plan, find out each of your debts:<\/p>\n<ul>\n<li>Outstanding balance<\/li>\n<li>Interest rate &amp; APR<\/li>\n<li>Any repayment charges<\/li>\n<\/ul>\n<p>Once you know this information, you\u2019ll be able to organise your debts into a list from the highest interest rate to lowest. You should attempt to pay off the debt with the highest interest rate first. Once you\u2019ve paid off the debt with the highest interest rate you should continue to move down the list until you are debt free.<\/p>\n<p>You can see what impact making overpayments towards your credit card rather than making minimum payments can have on the interest you end up paying:[\/vc_column_text][vc_single_image image=&#8221;336&#8243; img_size=&#8221;large&#8221; add_caption=&#8221;yes&#8221; alignment=&#8221;center&#8221;]<div class=\"aio-icon-component    style_2\"><div id=\"Info-box-wrap-1484\" class=\"aio-icon-box square_box-icon\" style=\"border-color:#d8d8d8;border-style:solid;border-width:2px;background-color:#fcfcfc;\"  ><div class=\"aio-icon-square_box\"><div class=\"ult-just-icon-wrapper  \"><div class=\"align-icon\" style=\"text-align:center;\">\n<div class=\"aio-icon none \" data-animation=\"pulse\" data-animation-delay=\"03\" style=\"color:rgba(255,255,255,0.01);font-size:32px;display:inline-block;\">\n\t<i class=\"Defaults-angle-double-right\"><\/i>\n<\/div><\/div><\/div><\/div><div class=\"aio-icon-header\" ><h2 class=\"aio-icon-title ult-responsive\"  data-ultimate-target='#Info-box-wrap-1484 .aio-icon-title'  data-responsive-json-new='{\"font-size\":\"\",\"line-height\":\"\"}'  style=\"\">Quick Tip<\/h2><\/div> <!-- header --><div class=\"aio-icon-description ult-responsive\"  data-ultimate-target='#Info-box-wrap-1484 .aio-icon-description'  data-responsive-json-new='{\"font-size\":\"\",\"line-height\":\"\"}'  style=\"\">If you have a student loan, check your repayment terms. Depending on when you took out a student loan, it may be wiped out if the loan is not repaid after 30 years. In addition, unlike other debts, you do not need to make student loan repayments if your income drops below a certain threshold. As a result it is often best to prioritise repaying overdraft and credit card debt first.<\/p>\n<p>For more information on paying off debt or if you are struggling with debt please <a href=\"https:\/\/www.moneyhelper.org.uk\/en\/money-troubles\/dealing-with-debt\" target=\"_blank\"><strong>click here to visit Money Helper<\/strong><\/a>.<\/div> <!-- description --><\/div> <!-- aio-icon-box --><\/div> <!-- aio-icon-component -->[\/vc_tta_section][vc_tta_section title=&#8221;Credit Scores&#8221; tab_id=&#8221;1596017596132-8323e70f-728f&#8221;][vc_column_text]A credit score or credit rating is used by lenders to help assess the risk that the borrower will repay the debt or default on repayments.<\/p>\n<p>Your credit rating could influence if you\u2019ll be accepted for the application, how much you can borrow and at what rate.<\/p>\n<p>Your credit rating is based on a number of factors ranging from how you\u2019ve behaved with borrowing in the past to if you are on the electoral roll. There are a few different providers of credit scoring services and your score may be different with each. The higher your credit rating, the more likely you\u2019ll be accepted for credit.<\/p>\n<p>You can check your credit score for free online, below are some of the providers you can do this with, but be aware that you may need to cancel any membership after a free trial period ends.[\/vc_column_text][vc_row_inner][vc_column_inner width=&#8221;1\/12&#8243;][\/vc_column_inner][vc_column_inner width=&#8221;1\/4&#8243;][vc_single_image image=&#8221;434&#8243; img_size=&#8221;medium&#8221; alignment=&#8221;center&#8221; onclick=&#8221;custom_link&#8221; link=&#8221;https:\/\/www.experian.co.uk\/&#8221;][\/vc_column_inner][vc_column_inner width=&#8221;1\/4&#8243;][vc_single_image image=&#8221;436&#8243; img_size=&#8221;medium&#8221; alignment=&#8221;center&#8221; onclick=&#8221;custom_link&#8221; link=&#8221;https:\/\/www.equifax.co.uk\/&#8221;][\/vc_column_inner][vc_column_inner width=&#8221;1\/4&#8243;][vc_single_image image=&#8221;435&#8243; img_size=&#8221;medium&#8221; alignment=&#8221;center&#8221; onclick=&#8221;custom_link&#8221; link=&#8221;https:\/\/www.creditkarma.co.uk\/&#8221;][\/vc_column_inner][vc_column_inner width=&#8221;1\/12&#8243;][\/vc_column_inner][\/vc_row_inner][vc_column_text css=&#8221;.vc_custom_1648562606432{margin-bottom: 0px !important;}&#8221;]If you have checked your credit score and you think it could be improved, you could try some of the methods on the following list to boost your score:<\/p>\n<ul>\n<li>Try not to make multiple credit applications in the same month<\/li>\n<li>Stay with the same bank for a long time<\/li>\n<li>Avoid moving house too often<\/li>\n<li>Register on the electoral roll<\/li>\n<li>Set up Direct Debits to repay debt on time<\/li>\n<li>Clear any outstanding debt<\/li>\n<li>Use a well-managed credit card, paying off in full each month<\/li>\n<li>Stay away from payday loans<\/li>\n<li>Remove any people linked to you on your credit file, who you are no longer associated with<\/li>\n<li>Cancel any credit cards that you no longer use<\/li>\n<\/ul>\n<p>For more information on credit scores please <a href=\"https:\/\/www.moneyhelper.org.uk\/en\/everyday-money\/credit-and-purchases\/how-to-check-your-credit-report\" target=\"_blank\"><strong>click here<\/strong><\/a> to visit Money Helper.[\/vc_column_text]<div class=\"aio-icon-component    style_2\"><div id=\"Info-box-wrap-8834\" class=\"aio-icon-box square_box-icon\" style=\"border-color:#d8d8d8;border-style:solid;border-width:2px;background-color:#fcfcfc;\"  ><div class=\"aio-icon-square_box\"><div class=\"ult-just-icon-wrapper  \"><div class=\"align-icon\" style=\"text-align:center;\">\n<div class=\"aio-icon none \"  style=\"color:rgba(51,51,51,0.01);font-size:32px;display:inline-block;\">\n\t<i class=\"Defaults-angle-double-right\"><\/i>\n<\/div><\/div><\/div><\/div><div class=\"aio-icon-header\" ><h2 class=\"aio-icon-title ult-responsive\"  data-ultimate-target='#Info-box-wrap-8834 .aio-icon-title'  data-responsive-json-new='{\"font-size\":\"\",\"line-height\":\"\"}'  style=\"\">Quick Tip<\/h2><\/div> <!-- header --><div class=\"aio-icon-description ult-responsive\"  data-ultimate-target='#Info-box-wrap-8834 .aio-icon-description'  data-responsive-json-new='{\"font-size\":\"\",\"line-height\":\"\"}'  style=\"\"><span id=\"E2309\">Your credit rating may impact <\/span><span id=\"E2310\">your ability to borrow and <\/span><span id=\"E2311\">the cost of borrowing money, for example a high credit score may enable a lender to offer you a lower interest rate<\/span><span id=\"E2312\"> making your borrowing more affordable<\/span><span id=\"E2313\"> and vice-versa, a low credit score may mean you will be offered money but at a higher interest rate. Always shop around when considering borrowing as different lenders may review your credit score in different ways.<\/span><\/div> <!-- description --><\/div> <!-- aio-icon-box --><\/div> <!-- aio-icon-component -->[\/vc_tta_section][\/vc_tta_tabs][\/vc_column][\/vc_row]<\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>[vc_row][vc_column][vc_column_text] Borrowing money is a necessity for many people, ranging from large purchases such as homes and cars to credit cards for covering holiday spending. The [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":11,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"full-width-page.php","meta":{"footnotes":""},"_links":{"self":[{"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/pages\/55"}],"collection":[{"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/comments?post=55"}],"version-history":[{"count":46,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/pages\/55\/revisions"}],"predecessor-version":[{"id":1109,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/pages\/55\/revisions\/1109"}],"up":[{"embeddable":true,"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/pages\/11"}],"wp:attachment":[{"href":"https:\/\/www2.wealthatwork.co.uk\/lseg\/wp-json\/wp\/v2\/media?parent=55"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}