Borrowing money will involve making repayments, so it is important that you calculate how much of a repayment you can afford before committing to any agreement. You shouldn’t try and commit to borrowing if the repayment is more than you can afford as the impact of not being able to keep up your repayments as agreed can be significant.
It’s also important to calculate any repayments based on the true cost of borrowing, which is the amount of money you plan to borrow plus the interest that you will be charged. Most lenders will be able to tell you the true cost of borrowing from them before you apply or commit. Those that don’t will give you enough details to work it out yourself, which can involve a little bit of mathematics.
APR stands for Annual Percentage Rate and is the way most lenders reflect the cost of borrowing. Comparing APRs of different lenders is the easiest way to compare which is cheapest, and helps you calculate the true cost of borrowing. If you are comparing lenders, those offering the lowest APR are the cheapest.
A good resource to use is the Money Saving Expert's interest rate guide for beginners, which explains everything you need to know about interest rates including savings, credit and APR.
It is very important to stick to the repayment terms of any loan you take out, and to pay at least the minimum payment towards credit cards each month. If you miss payments, or fail to pay the amount you should, this can impact your credit history which can have a knock on effect on your wider finances. See the section below on credit rating/scoring.
Generally, people with higher incomes are able to access cheaper rates when they borrow. This is because lenders will view them as less risky than those with lower incomes, but that doesn’t mean those with lower incomes can’t find good deals. It might just take a little bit of research, and involve using less well known lenders.