|1.||Bills||2.||How to pay your bills||3.||How to set up a bank account|
|4.||How to set up a savings account||5.||Borrowing money||6.||Credit score|
|7.||How to budget and save||8.||Education financial support||9.||What to do if you're in trouble|
5. How to Borrow Money?
Some circumstances may mean that you need to borrow money. This is money you can borrow from a lender or bank, but pay it back at a later time that has been agreed between you and the lender. Sometimes interest is added on.
There are different ways to borrow money but the main types are:
- Credit and Store Cards — These allow you to pay for things monthly, rather than upfront. However, there is an interest charge that you will pay on top of what you have borrowed if you don't pay the full amount back by the end of your first month. You have to look online at comparison sites to see the best credit card you can get that is suitable for you, as all cards will have different interest rates or offers;
- Loans — These are usually used for big purchases, such as a car, to pay off credit cards or to do larger house renovations for example an extension, new kitchen. Loans are normally from banks or lenders. You will receive the money in in a one-off payment and pay it back in monthly/sections that you have agreed with the bank;
- Overdrafts — Some bank accounts allow you to have an overdraft. This is money you can use once you have no money left in your account. You will have to pay this back by a certain time agreed with your bank, and please be aware that you can be charged a lot by going into this money. This is not the best method of borrowing money and should only be used in emergencies, for example, if you have run out of money to pay for bills.
When borrowing money it is important to check:
- If you really need the money or whether you could get the money by saving. Big financial expenses can lead to long commitments;
- The longer you borrow the money for, the more you will have to pay back;
- Are you borrowing the money secured or unsecured? Secured borrowing is normally fixed against your car or home. This means that if you do not make a repayment on time or correctly, you could risk your car or home being repossessed;
- Being charged for early repayments — some places charge a penalty fee.
What is interest?
Interest is money that is added on to the amount you borrowed and is called an interest rate.
When you borrow money, you will pay back the money you borrowed (the capital) plus the interest.
For example if you borrow £1,000 and the interest rate is set at 10%, you will pay back the £1,000 + 10% interest rate (£100) = £1,100 you pay back.
The interest can depend on the provider, the amount you borrow, and the period of time you borrow it for.