How to Borrow Money The Right Way

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At one point or another, almost everyone will borrow money, whether for a short-term expense or a major purchase. From personal loans to mortgages, credit -- in one form or another -- is a necessary part of almost everyone’s life.

Done the right way, borrowing money can be a great way to improve your quality of life and gain financial stability during difficult times. Done the wrong way, it can be a stressful experience that costs far more than you’d expect.

Unfortunately, many people borrow money without the right amount of planning -- an issue that’s contributing to a rise in personal insolvencies.

Below, we’ve listed five techniques that you can use to borrow money the right way, from using a simple household budget to planning each and every one of your loan repayments months in advance.

Make it clear to lenders that you’re a reliable borrower

Loaning money to people is risky, which is why payday loan providers such as Mr Lender use a variety of factors to determine whether or not someone is a good choice for a loan.

Before you even consider taking out a loan, it’s important to check that you’ll be taken seriously by lenders. This means checking the loan criteria and making sure you meet the requirements, from your net income to your residency status and financial history.

If you have a history of repaying loans on time, this can also be of value in showing that you’re a responsible, reliable borrower.

Create (and stick to) a responsible household budget

From car repairs to medical bills, unforeseen expenses can throw your budget out of whack and make borrowing money a necessity.

Before you borrow money, it’s important to have a responsible household budget prepared. This makes it easier to manage your spending once you receive the loan, helping you make all of the loan repayments on time.

Websites like Money Saving Expert have great guides to budgeting, as well as online tools that you can use to calculate your spending and save more money every month.

Avoid borrowing money to pay off debt

If you already have debt -- particularly high-interest credit card or personal loan debt -- it’s rarely a good idea to borrow more money to pay it off.

Instead, try to limit the amount of debt you have and focus on saving money. Simple budgeting is often all it takes to increase the amount you can afford to put toward paying off existing debt, helping you avoid the trap of repaying multiple loans at once.

Not sure if you’re ready to take out a loan yet? The BBC’s guide to when you should start to pay serious attention to your debts is a great primer avoid bad debt and ensuring you borrow within your limits.

Aim for a shorter, less expensive loan term

One of the easiest ways to reduce the amount you’ll need to pay to borrow money is to choose a shorter loan term.

Generally speaking, the shorter your loan term, the less you’ll need to repay in total. This is due to the way interest is calculated -- since interest accrues on many short term loans daily, shorter loan terms result in lower overall costs.

Do you really need six months to repay a loan? If you can budget effectively and pay your loan installments without any issues, you’ll almost always spend less on interest by picking a shorter loan term.

Borrow only when required, not habitually

Finally, it’s never a good idea to borrow money too frequently. While long term loans such as mortgages are unavoidable and essential for most people, short term loans are designed for financial emergencies and not for non-essential purchases.

As a general rule, you should only borrow money when you need it. If you see something you feel like buying, spend a week or two to think about whether or not it’s essential. If you really need it, aim to save and pay for it from your personal cash flow instead of borrowing money.

This way, not only will you avoid taking on unnecessary debt -- you’ll also be able to enjoy the items you buy without the stress and financial frustration that can result from relying too much on short term loans and credit cards.

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