How to best decide upon your lending options

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When considering any form of new borrowing resource there are a number of key factors which must be considered to ensure the right and sensible decision is reached. There is a whole host of lending tools at our disposal in the modern day economy and as such it can sometimes be tricky to ensure the correct resource is selected to meet our individual needs. Over the years credit has become an increasingly common factor in our everyday expenses. Collectively we have shifted our thinking to incorporate credit to be a means to obtaining the goods and services we desire, when we do not have the facility to make such purchases on an outright basis. Nowadays credit is used so generally that many millions of us use credit cards as a means of managing everyday purchases and then splitting the cost over a longer period of time for example. There is credit which exists to serve specific purposes, such as Hire Purchase for the purchase of furniture and cars as well as credit based purchasing for catalogue items; such as clothing or holidays. Often credit will be made available at the point of purchase so as to demonstrate how the overall cost can be repaid over a longer period of time and at a manageable rate and in doing so avoid the need to spend a lump sum of our hard earned wages.

If used correctly it is true to say that any form of credit resource can assist and help us achieve the things we want to achieve. Take for example the purchasing of a property; the vast majority of us do this via the means of a mortgage. Equally however when credit is used without full consideration, it can lead to further financial issues down the line. Many millions of consumers experience debt related issues at some point or another in their life time and often this arises from an over-commitment in terms of credit based facilities. A change of circumstances or a loss of a job to take an extreme example, can mean that credit based agreements cannot be maintained and equally further credit is deemed as needed to act as support. Thankfully for consumers who are genuinely struggling with their financial based commitments there are a number of support services in existence. One such example is Step Change the debt based charity. Step Change allows individuals the opportunity to review and discuss their spending on a free and impartial basis with the intention of offering support in moving forward in a positive and sensible manner. For any consumers who are struggling to maintain their monthly finances, especially where their basic living costs are concerned, considering the free advice of such services may make a whole world of difference.

Clearly in order to make sensible lending and borrowing choices we need to plan adequately and not over-commit ourselves and our wages on a month by month basis. In simple terms this means being fully aware of existing spending habits and how a new expense could and would need to exist alongside these. One of the simplest and quickest ways of keeping track of this is via the use of a monthly budgeting planner. A budgeting planner is a record of all spending, past and present as well as costs which fall later in the calendar month. Simply listing our costs in a logic and honest manner will help us understand not only where are money is being spent but also if there are any areas available for improvement. For those who are new to budgeting a sensible starting point is to simply record all spending as it occurs for an entire month. After which a review can be conducted to understand what costs are considered vital and which of those which could be reduced. Anything relating to basic living expenses will of course be considered as vital as they effectively keep a roof over our heads; anything else follows behind these costs.

Next consider what credit based commitments are already being managed in the budget and how a new credit commitment could work sensibly. Any given individual will need to plan for disposal income each and every month and this means understanding what would be ideal as spare income. When planning a budget, if disposal income is not considered, it is likely unexpected costs will arise as friends and family try to make arrangements for the month ahead. So planning for spare income can be just as important as planning for living costs in some senses. Once all costs have been reviewed and a level of understanding gained, it will be much easier and clearer to understand what type of credit could be suitable. Depending on the need there is likely a number of different choices which will be available. Being sensible in this consideration is also very important because using the wrong resource for the wrong need will likely result in a financial discrepancy. Take for example a broken electrical appliance such as a washing machine. The average cost of a washing machine is likely going to be in the hundreds rather than thousands and therefore a borrowing resource must be matched to this need accordingly. It may be that there is an existing credit facility which could be used such as a credit card for example. Equally considering a £5,000.00 banking loan for a broken washing machine may not be a suitable fit and may even result in rejection. For short term borrowing needs there are short term loans, payday loans and credit cards for example. In instances where larger scale borrowing is required, for needs such as home improvements or family holidays it may be sensible to talk to your bank for a longer term repayment option. Be realistic in your borrowing and this means if you need to borrow £300.00 select the likes of a short term loans lender. If however you need to purchase a new car, discuss the finance options available with the car dealership instead. Planning and adequate consideration for any form of borrowing is fundamentally the key to a successful credit based commitment.

Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290% Maximum APR 1351%

Warning: Late repayment can cause you serious money problems – For help, go to moneyadviceservice.org.uk

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Author: Internal Marketing Department