# Money. Save it. Spend it. Understand it.

## Take an interest in the interest rate

When considering a loan, it pays to look at all the options, including the representative rate, the term, the monthly repayment and total amount payable.

There are five important descriptions of interest rates you need to get your head round.

### Key point

The longer you have debt the more it will cost you, however you must make sure you can afford the monthly repayments.

## What are the different ways of borrowing?

### It all depends on what you’re buying.

All forms of borrowing get you into debt, whether you’ve an overdraft, a bank loan, a credit card, or just borrowing a fiver off a mate.
Apart from choosing what you get into debt for, you should think about the best way of borrowing the money you need.

### Think long term loans for big purchases.

Mortgages and loans are usually chosen to buy things of high value which will take a long time to pay off such as properties and cars. These types of lending are designed as long-term loans to be repaid over more than a year.

### There’s a loan for almost everything.

There are a variety of ways to borrow money. They all attract a different rate of interest and they all have different uses.

### Key point

Pay off short term debts like credit cards and overdrafts sooner rather than later. Convenient lending is usually a more expensive option.

## Take control of debt

### Make sure it doesn't hang over you.

If you borrow money, you will be charged interest. And you’ll find that the interest charged on loans and credit cards is much higher than the interest you can earn on savings.

### The effect of interest.

If you borrow £1,000 at 20%, the debt quickly builds up

Year 1 £1,000 + £200 interest = £1,200
Year 2 £1,200 + £240 interest = £1,440
Year 3 £1,440 + £288 interest = £1,728
Year 4 £1,728 + £346 interest = £2,074
Year 5 £2,074 + £414 interest = £2,488
Year 8 £3,583 + £717 interest = £4,300

These calculations are only illustrations and based on not paying back any debt during the 8 year period.

WIth any form of debt, you'll need to make a minimum monthly repayment or you'll have to pay charges and fees. If you only pay the minimum amount required your debt will take much longer to repay as interest is added to the overall balance.

### Don't just look at the monthly repayments.

It's important to consider the monthly repayments of a loan, to make sure that you can afford and budget for them with confidence each month.

If you're offered low repayments on a loan it may seem a good deal. But if you're making low monthly repayments, and the APR is high, it will take you longer to pay off the loan.

### Key points

The longer you have debt the more it will cost you.

## Build up your credit rating

### The better your credit rating, the greater the chance of you being accepted for a loan. Your credit rating determines your ability to borrow money, and what your debts will cost you.

Your credit rating will take into account your assets – such as property – but equally importantly it is based on what banks and other organisations think about your ability to borrow and repay money.

Interestingly people who have borrowed money and paid it back as planned often have a better credit rating than those who have never borrowed. This is because they’ve proved they can manage their money in agreement with lenders.

So borrowing money helps to establish a good credit rating, but only if you make the agreed repayments on time.

If you want to check your credit rating you can do so by getting in touch with any of the three main credit agencies, Equifax, Experian or Callcredit who will be able to provide you with a credit report.

### Key points

Build up your credit rating by only borrowing what you know you can afford to repay.

The information in this guide is not intended to be a recommendation or advice.

Halifax products and services are offered subject to status. Lending decisions and any amount we lend is based on your personal circumstances, you need to be aged 18 or over to apply. Overdrafts are repayable on demand.

Halifax is a division of Bank of Scotland plc. Registered in Scotland No. SC327000. Registered Office the Mound Edinburgh EH1 1YZ. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 169628.