Five Tips To Help You Become A Better Borrower - The Money Pages

That’s according to Tracey Harrop of the Co-operative Bank who is offering top tips on being a better borrower.

It comes as Bank of England figures reveal more household made use of credit and personal loans in 2019 to boost their family finances, but also as many people look to pay off the expense of Christmas by employing their borrowing power.

Harrop explained: “As long as you plan carefully and follow some golden rules, borrowing money can be a great tool when trying to improve your overall health.”

Here are five ideas to help you become better at borrowing in 2020.

1. When to borrow

Since borrowing is such a big commitment, the Co-op advises only doing so when it will actually improve your financial situation.

A good example of this is by taking out a personal loan to make home improvements, something which could add value to your property.

2. Choosing the right loan

We are always being advised to ‘shop around’ and this is essential when looking for a loan. Make sure you start by choosing the right type of lending for your circumstances.

The Co-op explained how many people opt for credit cards and overdrafts but these can have high annual percentage rates (APR) which is the amount of interest you pay over the year. A loan might be better if you are looking for a lower rate.

After you have chosen the type of loan, start investigation multiple lenders to make sure you are being offered the best solution on the market.

The Co-op has a Loans Marketplace, which allows customers to find the right product amongst a panel of lenders, for their credit profile.

3. Watch your credit score

When applying for credit, some lenders might apply something called a ‘hard search’ which could negatively impact your credit score.

Before applying, therefore, make sure you understand how an application might impact your credit profile and try to opt, if possible, for a ‘soft search’, which won’t leave a footprint on your record.

4. Reduce monthly payments

The Co-op advises, instead of taking on more credit, to try and reduce monthly outgoings by consolidating loans, credit cards and store cards into one loan with one monthly payment.

You may be able to adjust the term to ensure the repayments are within your budget and because the debts will be streamlined, you will be more clear about the time in which you have to pay the debt. It means you can aim towards a ‘debt-free’ date.

5. Overpaying

Consider using any spare money which comes your way to pay off your loan. Savings rates are low at the moment, so you will be unlikely to earn much interest on any surplus money, so paying off a chunk of your loan would make better financial sense.

Check the terms and conditions of your loan to see whether this could be an option for you.