While the economy has enjoyed pronounced growth in recent times, there remain concerns that this has been driven primarily by heavy consumer borrowing. This increased by 8.3% year-on-year in November 2015, rising to its highest level since before the great recession (February 2006). With the threat of a global recession also looming large over the economy, it may be argued that consumers are repeating similar spending patterns to those that preceded the subprime mortgage collapse.

The Importance of responsible borrowing: What should you consider when applying for a Loan?

In order to avoid such a calamity, however, it is crucial that consumers strive to borrow responsibly and make informed decisions when applying for loans. Here are three considerations when looking for a loan: –

Do you really need to borrow?

Let’s start with the basics, as consumers have been known to consider borrowing when their circumstances do not require this. Sourcing short-term borrowing is often a knee-jerk reaction to a temporary financial issue, so it is important to think clearly and consider other alternatives before making a commitment. If you are experiencing a temporary cash flow shortfall or simply have a one-off payment to complete, you may be better served by borrowing money from friends and family or simply creating an emergency budget.

What type of Loan should you consider?

If you do decide that borrowing represents the best option, you will need to determine alternative types of loan and potential providers. Unsecured loans represent the best option for short-term borrowing, as they do not require individuals to risk their home as collateral. This type of lending does trigger higher rates of interest to offset the service provider’s level of risk, however, so you will need to compare the market to find the most affordable option. Companies such as Everyday Loans offer a popular option in the current market, as they offer flexible terms and rates across a five year period (while allowing you to borrow more).

Consider your own financial circumstances

While your research may lead you to believe that you have sourced a viable service provider and loan agreement, it is still important that you translate the associated terms into digestible financial figures. This will leave you with a monthly repayment total, for example, which is inclusive of interest and can be factored into your spending budget. So long as this is comfortably within your existing financial means, the loan can offer short-term relief without compromising your long-term security.