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Borrowing is as much a part of life for us all now as work/weddings/childcare/holidays and supermarket queues on a Friday night. It’s something that most of us factor in to our finances at some point, from using credit cards, to taking out a mortgage to help buy a home. As credit has become an every day occurrence for British consumers, the markets for different credit types have expanded and there is now a broad range of choice for those looking for financial help. So, here are six questions you should ask yourself if you thinking of borrowing:
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How much do you want to borrow?

Determining how much credit you need is the first step to identifying the best credit option out there. Most will have a cap on the maximum level of credit that you will be offered so do some research and work out how much you need. For example, if you want to borrow five or six figures to fund a property purchase then a mortgage is really your only option. If you need a set amount then you might benefit from personal loans and if you don’t have an exact figure, but you know roughly the amount of credit you need, then you might be better off with something more flexible, such as a credit card.

How long do you want to borrow for?

Mortgages, again, win in terms of the length of time you can borrow for (around 30 years) and the shortest term type of credit offered is probably payday loans. Payday loans are generally offered for a single month – from one payday to the next – and are suited to a short term cash need where you know that you’ll be able to clear the credit within a few weeks. If you need more extensive credit – that is likely to take longer to pay back – payday loans aren’t the best option. In that case, personal loans with regular, scheduled repayments can take the pressure off clearing a credit balance and provide the kind of regular repayments that are much easier to keep track of over a longer period of time.

How many times do you want to borrow?

This question is relevant in terms of whether you want to have access to a single lump sum or a credit facility that you can repay and reborrow, as and when you need it. Credit cards may offer the more flexible option – or a revolving credit facility – as you can spend and then repay as you need to, controlling the amount that you pay in interest by paying off the balance at the end of each month.

Why do you want to borrow?

Another key question when looking at different credit types is what you want to use the money for. If you’re looking to consolidate debts, for example, a loan may be the best option as the regular repayments are scheduled and easy to manage and the interest may be lower than that which you were paying on other types of credit. If you’re looking for credit to act more as a buffer option for when times are tight then credit cards are a more flexible choice. For a situation where you have a one off, short term need for some urgent cash, you might find payday loans fit the bill.

What’s your credit rating like?

It’s your credit rating that determines whether you can get credit and the cost of that credit (the APR%). This is influenced by a number of factors, such as how much existing credit you already have, what kind of credit history you’ve accrued (for example, making payments on time) and whether you have any credit at all. If you don’t have a great credit record then guarantor loans and bad credit options can provide an alternative to mainstream finance. Guarantor loans, in particular, are a good choice if you have someone who is willing to guarantee your repayments. If you do have a bad credit rating then it’s not the end of the world – this can be improved over time by taking action such as paying off some existing credit and ensuring you don’t miss payments

How do you want to borrow?

There are all sorts of credit options out there offering numerous different choices when it comes to managing borrowings and the repayment of any credit that is extended to you. For example, you may want to set up an arrangement that is all online and automated so that you don’t even have to think about the repayments each month. If you don’t want to deal with mainstream finance institutions then it may be preferable to opt for doorstep loans, where most of the loan arrangement – and the repayments – are done in person.

To help you narrow down your loan options it’s worth using our Quick Start tool – 4 quick questions that will help you discover the loans that you might want to investigate further. As with all credit lenders are required to not only assess your credit worthiness but also ensure you can afford the repayments. So expect all lenders to ask you for income and expenditure information.