Borrowing money – whether it’s $50 to pay your mobile phone bill or $100,000 for a new house, there is a lot to think about! There are many different ways of getting the money you need if you do indeed need it… that’s always the difficult part, being honest with yourself! Do you really need the latest Xbox? Probably not! Do you need a car to get to work? More than likely!
Show me the money!
When borrowing money, you have various options, all of which have pros and cons. Let’s take a look at some of the most common solutions in further detail:
- Borrowing from family and friends – The first option you have is to borrow money from your friends and family. The good thing about this is that it is unlikely your loved ones are ever going to charge you any interest. Interest is the percentage you pay back on top of the money you have borrowed. You can think of it as a fee you pay for being given the money.
- Borrowing from the bank – Most people borrow from a bank when they want to buy a house or when they need funds for starting a business, for example. Being accepted for a bank loan is a lot more difficult because they take a lot of factors into consideration, including your credit history. The daft thing about a credit rating is that you actually need to show you’ve paid off loans and other forms of credit in the past in order to get a good rating. So it’s rare that your first ever loan will be from the bank.
- Borrowing from loan companies – There are many different types of loan companies. You have payday loan companies, where you borrow a small amount of money for a short period of time and pay it back with a lot on top. There are then secured loans, where the cash you lend is secured against something you own. For example, with logbook loans, the money you borrow is secured against your vehicle. So, if you don’t pay the loan back, the company can take your car! You also have the likes of Altrua Financial, who help with home loans. With lending companies, you have plenty of different options available, but you can always expect to pay back a lot more than you have borrowed.
Is borrowing money really so bad?
We tend to think that borrowing money is a negative thing! You’ve no doubt heard the horror stories about people ending up in lots of debt because they borrowed money and didn’t pay it back, leading to more and more charges. However, it’s not always that way! Borrowing money can be a positive step, and knowing when to borrow money and when not to is a key part of how to manage money.
Of course, we would all like to make our purchases outright, but it’s never that easy! Do you know many people that have a spare $200,000 handy to buy a house? It’s unlikely. A mortgage is a type of loan for those who want to purchase a property. You will usually need to put down a deposit, say 10 – 20 percent of the property price. The lender will then lend you the rest of the money and you’ll pay it back monthly over many years. Property is a great investment and for most people and this is the only way to get on the property ladder. Most people also take out a loan when they buy a vehicle, which again is an important purchase, ensuring you can get to and from work. These are investments. You need to think about whether something is going to bring value to your life and long-term gain.