Borrowing wisely – the basics
Borrowing money should always be thoughtful. Remember that every debt is a liability that you have to repay, usually with interest.
When and why to consider borrowing carefully:
- Emergencies: Borrowing should be a last resort when your financial cushion is insufficient.
- High costs: Always check carefully how much you will ultimately have to pay back. Pay attention to the APR (Annual Percentage Rate of Charge), which includes all the costs of the loan.
Safe forms of borrowing:
- From family/friends: This is the safest way, but requires clear rules. Put the agreement in writing, specifying the amount, term and method of repayment to avoid misunderstandings.
- At the bank: This is the legal and legally regulated way. Banks check your creditworthiness carefully, which protects you from taking on too much debt.