The Borrowers by Sainsburys Finance

Good debt vs bad debt - The key to deciding whether you should take out a loan or not is to make the distinction between ‘good’ and ‘bad’ borrowing. A good way to tell the difference is to think about why you want to borrow. If it’s to buy something you don’t really need, that you could wait for or isn’t worth the money, then that’s ‘bad’ borrowing. If, however, borrowing is a means to an end that leaves you better off in the long run, then that’s a good reason to go ahead.

The new car owner
Take Jim Edwards, for instance. Jim, 56, was made redundant from his job as an accountant with a large wholesaler last year. Along with his staff pass, Jim had to hand back his company car, leaving him without his own transport for the first time in many years. Jim was lucky to soon find part-time work about 40 minutes’ drive from his home, but the journey took more than two hours by public transport.

‘I just had to buy a car,’ says Jim. ‘I had been warned that dealer finance could be expensive, so I investigated personal loans.

‘In the end I took out a loan through my bank and bought myself a three-year-old diesel Passat. I’d done my research and, because I had the finance in place, I felt confident haggling with the dealer and managed to secure a good discount. It’s a great car – and economical too – but the best thing is that I now get home at a reasonable time.’

The creative entrepreneur
Eileen Corelli, 48, also benefited from a loan when she decided to turn her hobby into a career. ‘I’d been doing watercolours in my spare time for years and had been quite successful selling them, so I knew I could make a living,’ she says.

But with three teenage children, finding room for a permanent studio in the family home was impossible. ‘Fortunately we have a long garden, so my solution was to get a loan and install a garden studio,’ says Eileen. ‘It’s not massive, but it has lovely natural light and is well insulated, so I can use it all year round. Better still, because I actually leave the house to work, I find I’m much more focused and productive. Knowing that I’ve got a monthly repayment to cover is another good incentive, but strangely, now I’ve got my own studio, I find the business side of things easier to manage too.’

The clever debt managers
Sally and Nick Robards, both in their 30s, let their credit card debts get out of control. They overspent from their savings account on holidays, items for the house and outings for their two children, Heloise and Finn. Suddenly, they realised that they were barely able to make the minimum payments and that the debts were going to take years to clear. With a bit of planning, however, the problem was not difficult to solve. When mortgage rates fell, Nick was left with more of his salary spare, and was able to pay more off the debt. He also took out a personal loan to pay off a large chunk of his card debt. ‘I didn’t want a secured loan because I didn’t want more borrowing against the house, so instead we went for a personal loan,’ says Nick. ‘We now pay a fixed amount each month and we know the debt will be cleared on a certain date,’ he continues. ‘And we won’t be running up debts on the cards again,’ adds Sally. ‘We’ve learned our lesson.’

Good vs bad borrowing
Is a personal loan the right solution for you? Ask yourself these questions before taking the next step…

Do I need the money right now? If you can wait until you have saved up the cash, then you probably don’t need a loan.
Am I making an investment or an impulse purchase? A personal loan could be the right choice if it provides you with a means to an end or is for something you really need.

Can I afford to make the monthly repayments? It’s important to be fully aware of how much you have to pay back every month.

How long will it take me to pay it off? Try to pay off your loan as soon as possible and have a good idea of how long it will take.

How much do I really need? Don’t be tempted to borrow more money than you really need to achieve your goal.

Advertisement Feature Issued by Sainsburys Finance