Is borrowing money a good idea long-term?

What to consider when it comes to long-term borrowing.

We are a nation of borrowers. According to the Money Charity, at the end of March 2017, the average debt per household in the UK was £56,632. Collectively, as a nation, we owe £1.529 trillion. Debt is a part of every day life for many of us and a way to create something, own something, or get to the next stage in a career or plan. From borrowing money for a mortgage, to using a personal loan to fund education, travel or business growth, there are many reasons to borrow. But it is a good idea long term?

borrowing money

Longer-term borrowing makes repayments easier

Whether you’re borrowing homeowner loans or a straightforward personal loan, borrowing over the long term makes the debt easier to manage. Longer terms mean lower monthly repayments, which in turn can ensure that you don’t get into a situation where you’re missing payments. Longer-term borrowing makes it easier to factor in repayments without too much impact on your monthly budget.

Long-term borrowing can change your life

This really depends on your motivation for borrowing but sometimes this can change your life. Perhaps the best example of long-term borrowing is the mortgage. Few of us could afford to buy a five or six figure property without the ability to borrow 80%+ of the cost. Being able to borrow long-term enables us to put a roof over our heads and create property security for the future.

Long-term borrowing doesn’t have to be costly

The interest rate you pay for long-term borrowing will depend on your credit score and a good credit score will reduce the amount that you pay to borrow. Even if you don’t have a great credit score there are long-term borrowing options available and ways to reduce how much you pay. For instance, guarantor loans provide a lender with security knowing someone else will pick up the repayments if you can’t and so they can be cheaper to borrow.

Long-term borrowing – getting it right

The success of long-term borrowing really depends on how you borrow and what you’re borrowing for. It’s important to make sure that when you borrow you’re getting it right.

Borrow long-term for a reason. Responsible borrowing means taking on a loan that will make a difference to you in some way, rather than additional money to spend without purpose.

Stick to your repayments. Long-term loan repayments, made on time, are great for your credit record. If you’re in it for the long haul then commit to the payments and make sure you don’t default – your credit score will thank you for it in years to come and you’ll never have to make use of bad credit loans again.

Make sure you can afford it. Long-term borrowing only works if the repayments are relatively easy to meet and won’t make it difficult to live from month to month.

Choose your loan type carefully. Long-term borrowing options come in many different shapes and sizes, from unsecured personal loans, to loans that are secured on an asset, such as your home. You might get a better interest rate with a secured loan but face a greater risk. Take the time to think it through thoroughly before making any decisions.

 

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