Borrowing money can sometimes be a necessary evil. Sometimes we have no choice but to borrow money and that’s okay, but like everything, it pays to shop around. It’s all about interest rates. Borrowing €5,000 at an interest rate of 6.99% over two years will cost you €372.17 in interest compared to an interest rate of 11.9% for the same loan at €643.21.
Joey Sheahan, head of credit at online brokers MyMortgages.ie, said whether or not to borrow money is a decision people should pay close attention to, whether it’s a small or a large sum in question. Getting a loan can be easy and a nice lump sum will be tempting, but there’s also a long road of repayments to consider.
“Your ability to repay should play a vital role in your decision-making process. Regardless of the amount, if you cannot maintain repayments, it will negatively affect your credit rating and you will also end up paying a lot more interest and possibly late fees and penalties,” Mr. Sheahan said.
There are many banks and credit unions offering personal loans and it is important to do your homework. Banks and credit unions are both regulated entities, which provide borrowers with the highest level of protection.
“Money lenders, on the other hand, are often unregulated and charge exorbitant interest rates and should, in the vast majority of cases, be avoided,” Mr Sheahan said.
The type of credit you take out will also have a big impact on your cost of borrowing. For example, credit cards are a very expensive form of credit. Personal loans can offer much better value and interest rates can range from around 2-3% on a mortgage to 8-9% on a car loan or 15-18% on a credit card.
Everyone’s personal situation is different and each decision to borrow or not must be assessed individually.
According to the Banking and Payments Federation Ireland (BPFI), the value of personal loan levies increased 20.1% year-on-year in the second quarter of 2022 to €414 million. The figures show that €141 million was drawn down in home improvement loans during this period, which is 12.7% more than during the same period of 2021. personal loans for automobile financing fell by 0.4% year-on-year to reach 128 million euros. while the value of loans for other purposes, which includes loans for education, holidays and weddings, increased 59.2% year-on-year to 146 million euros.
Mr Sheahan points out that while borrowing for a mortgage can be justified as a necessary financial commitment to owning your own home and putting a roof over your head, borrowing for “non-essential” things like vacations, furniture and appliances should be avoided in many cases. case because you will end up repaying more than the cost of those goods.
“Having too many lines of credit can become overwhelming and unmanageable and can leave people in a precarious financial situation,” he said.
It is definitely worth talking to your bank or credit union before borrowing and checking the rates they offer. Many will offer discounted “first loan” rates that will be lower than their general loan rates.