Borrowing Money: What You Need to Know Right Now

Thinking of taking out a loan? You probably wonder how much it will really cost and whether you’ll get approved. The good news is you don’t need a finance degree to get clear answers. Below you’ll find simple steps you can use today.

How to Calculate Real Loan Costs

First, look beyond the headline interest rate. Lenders add fees, insurance, and sometimes early‑repayment penalties. Add up the total amount you’ll pay over the life of the loan and then divide by the number of months. That gives you the true monthly cost.

Use a loan calculator to plug in the amount, term, and APR. If you’re comparing a £5,000 personal loan with a £5,000 credit‑card balance, the loan will usually be cheaper because the APR is lower. But always double‑check the fee schedule – some lenders charge a setup fee that can tip the scales.

When you see a mortgage offer, remember the rate can change after the fixed period ends. A 30‑year mortgage at 5% now might jump to 7% later, which would raise your payment dramatically. Ask the lender for a ‘rate‑lock’ if you’re close to buying.

Simple Steps to Improve Your Borrowing Power

Your credit score is the first thing lenders look at. A score above 720 usually gets the best rates. If you’re below that, try to pay down existing debt, keep credit‑card balances low, and correct any errors on your credit report.

Debt‑to‑income (DTI) ratio matters too. Lenders like to see your total monthly debt payments below 35% of your gross income. If your DTI is high, consider consolidating a few debts into one lower‑rate loan before applying for a new loan.

When you apply, have all documents ready: proof of income, bank statements, and a clear explanation of why you need the money. A well‑prepared application shows you’re organized and reduces the chance of a surprise refusal.

If you’re a student with a loan, know that repayment dates changed after 2024. Some borrowers can now start paying earlier, which can improve credit history faster. Check the new schedule and plan your budget accordingly.

Home equity loans can be a cheap way to borrow if you own a property and have built up value. A £60,000 home equity loan typically has a lower rate than a personal loan, but you risk losing your house if you miss payments.

For car financing, compare bank loans with dealer offers. Banks often have lower rates, but dealers may throw in freebies. Run the numbers for both and pick the option that gives you the lowest total cost.

Bad credit doesn’t mean you’re out of options. Some lenders specialize in loans for scores as low as 450. These loans come with higher rates, so only consider them if you need cash urgently and have no other route.

Finally, keep an eye on market trends. Mortgage rates and personal loan APRs can shift with the Bank of England’s base rate. Timing your application when rates dip can save you hundreds of pounds.

Borrowing money doesn’t have to be a mystery. By breaking down the true cost, cleaning up your credit, and timing your application, you can get a deal that works for you. Use these tips next time you sit down with a lender – and walk away confident you’ve made the right choice.