Would you borrow money knowing that you would have to pay back extra?

When I first saw this questions, my initial thought was 'no way!' Why would anyone borrow money knowing that they would have to owe extra. It sounds like a ridiculous idea!

But the more I thought about it, the more I thought there were certain circumstances where it could be a good thing.

When you buy a house, you can get a mortgage from the bank (as long as you have a big enough deposit). Although you have to pay interest on a mortgage, it's worth it because it would be almost impossible to save the full amount for a house on your own. It is also possible that the house might rise in value over the time you're living there. meaning that when you move you'll actually be making money from the sale of your house, which might cover the interest you have to pay and more!!

Student loans are worth it in many cases. The interest you have to pay is relatively small (about 5%) and you can borrow enough to allow you to get a degree, which might help you to get a better paid job.

It would be worth it if you wanted to set up a business. It doesn't matter if you need to give the bank extra money because you'd be making a lot of money (hopefully!)

However, I think it's important to look at exactly how much you have to pay in interest. Many people who are desperate for a bit of extra money, for example at the end of the month to pay rest, would look for a simple solution. There are some companies advertised on TV which offer short term 'pay day loans', for example quick quid. When I had a look at the website for this company, I saw that the interest rate was 292%, which is absolutely horrific!!

What do you think? Is it ever a good idea to borrow money?

Comments (2)

  • Olivia-Avatar.jpg Olivia @ the BNC 09 Nov 2018

    I'm really pleased that you have delved into the difficult topic of loans and borrowing. I think they're difficult to understand for adults, and that high interest rates can often catch people out. I've given you a star for your curiosity!

    I hope that people can answer your questions and give examples of things that they think are worth borrowing money for, and examples of things that are perhaps aren't worth it.

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