Deciding whether to save money or take out a loan

Should you take out a loan or save? It’s a simple enough question, though the answer isn’t always as easy. When you’re considering either borrowing money or saving it, there are several factors to consider, and questions to ask yourself.

What do you need the money for?

The simplest question of them all. If you’re thinking about taking out a loan, then you should already know why you need it.

Though it’s a simple question, you should think about it in more detail. What is that you plan to do with the money, and how much will that cost? It’s important to think about this because it will immediately give you some criteria for whether you should borrow or not.

Is the thing you need essential? Do you need to have it immediately? If it isn’t essential, or if you don’t need it yet, then a loan might not be the right choice. Bear in mind that a loan will impact your credit score and that if you need a loan again in the future – for something more important – than your ability to borrow may be impacted.

When do you need the money for?

If you have some time before you need the money, then it’s probably worth saving first. Indeed, if you don’t need the money for a year – for example – then it is definitely worth saving first and then only taking the loan if you need it.

If you don’t need the money yet, then a loan might actually be counter-productive as you’ll start paying interest shortly after taking it (normally from the first month). If you could have been saving, then you’re actually spending money that you might otherwise have saved.

Of course, if you need the money straight away and don’t have the savings, a loan could be a perfect option. Balance the pros and cons of saving and borrowing, and make a decision that is going to put you in the best position.

How much can you save per month?

If you work out a budget that will see you getting the amount of money you need through saving, in the correct timeline, then it’s probably worth waiting.

Likewise, knowing how much you could save will also help you to understand how much you can afford to pay back on whatever loan you might take. If you can save £300 a month for now, then you know you can afford to pay back £150 a month once, or if, you take out a loan.

Can you afford to repay a loan plus interest?

All loans come with interest attached, and the interest terms are an important consideration. If you are planning to take a loan, then you should make sure you can pay it back. Lenders will run you through affordability checkers themselves, but these won’t be unique to your situation.

The interest you pay will depend on the borrowing you choose. For example, a loan of £9,000 could cost you a lot more if you take it out over a long period of time.

As a rule, the shorter the repayment terms, the less you will pay. If you can afford to pay back more straight away then that option will normally be best.

Whatever choice you make, it is important to budget carefully. Taking a loan can be a great option, but only if the terms work for you!

6 Things you can use a loan for

Loans can come in handy for all kinds of expenses, which is why it’s important to keep a healthy credit score and understand what kind of loans are out there in case you ever need them. While getting into debt shouldn’t be your first choice, loans can help you to afford bigger items sooner, as long as you’re sure you can make the repayments on time every month.

Car loans

One of the most common reasons for taking out a loan is to finance a new car, and this one’s totally understandable. Most people use their car to get to work, so taking out a loan to allow you to continue bringing home the bacon seems like a reasonable trade-off to make. If you do take out a loan to finance a new car, be careful not to overspend – just buy what you need – because otherwise you may be paying the car off for many years.

Home improvements

Home improvements are another top reason to take out a loan. Like a car, home improvements are often considered an investment because they can increase the value of your home in the long term. Of course, they also make your home more pleasant to live in and sometimes they can feel necessary, particularly if your kitchen is dated and appliances are no longer working the way they should. Loans for home improvements can be a good investment provided you’re careful to only borrow what you can pay back.


Many people take out loans to pay for holidays. While this can be a good idea for those people with reliable incomes who know they can pay the loan back, it’s important to only take out a loan to pay for a holiday if you’re very confident of paying back the loan. If you’d rather avoid taking out a loan but still want to take the family on holiday, you could consider budget options like staycations, camping trips, and UK holidays instead.


The cost of the average UK wedding today is an eye-watering £16,000, so it’s no surprise that many people resort to taking out loans to pay for them. A wedding is, hopefully, something you only do once, so it’s understandable if you want to splash out. However, if you’re taking out a loan to pay for a wedding, you could consider cost-cutting measures to take such as enlisting friends and family to help with wedding photography or making the cake, and still pull off the perfect day with less debt to pay after it.

Pay off existing debt

Sometimes it does make sense to take out further loans to pay off existing debt. If you can find a loan with better repayment terms and a lower interest rate, it makes sense to pay off high interest loans (such as payday loans and short term loans) quickly, so that you can reduce the amount of interest you will pay overall.

Unexpected bills

Finally, you may need a loan to pay off unexpected bills. This can be anything from the boiler breaking to vets bills, and sometimes even those of us with savings can’t afford to cover these unexpected costs without taking out a loan. Obviously, it’s more preferable to take out a loan and replace your boiler than it is to try and survive the winter without heat, so loans are highly recommended in this instance. Just be sure to shop around first and try to get the best terms, and don’t be tempted to take out more than you need to.

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