A guide to borrowing money responsibly

Couple With Cups Sitting

Written by: Paul Went
Managing Director, Consumer
2nd March 2022


Deciding to borrow money, whatever the amount, is a big decision and shouldn’t come without significant research and thought.

Our latest research into Britain’s borrowing habits revealed that only two fifths (41%) spend time shopping around to ensure they get the best deal when it comes to borrowing from a lender, and alarmingly seven in ten (71%) admit to not researching the actual lender before applying.

With three in five (59%) of us having borrowed funds from either a bank or financial lender – a number that is likely to rise amidst the current climate as people look to breakdown rising costs – we want to make sure consumers are taking the necessary steps before making these decisions.


Top tips for borrowing responsibly

  1. Step one: Establish what you're borrowing the money for

    One of the first things to do before you apply for a loan is to make sure you have a responsible reason for borrowing the money and a very clear idea of how each penny of it will be used.

    From paying towards your wedding day, renovating your kitchen or consolidating your debt, there are plenty of reasons why you may need to take out a personal loan.

  2. Step two: Have a budget in place

    The golden rule for borrowing money is only borrow as much as you can afford to pay back.

    Our latest research found that only two fifths (41%) work out their budget before borrowing money. Budgeting is essential to ensure you can meet your repayments each month.

    When creating your budget, try to include as much detail as possible. As well as your monthly earnings, try to capture all your outgoings too, from rent or mortgage payments to your morning coffee purchase.

    Once you’ve assessed your current spend, you should look at putting a spending plan in place. This will look at things like how much you can afford to spend each month on essentials such as food and any luxuries once your bills – including your loan repayments – have been paid. This will help you to avoid overspending and give you a clear idea of what your spending limits are.

    Once you have your budget in place, consider setting yourself repayment goals. Breaking down your repayments into smaller steps can often make them seem more manageable. You could even set yourself weekly targets to ensure you stay on top of your repayment goals each month.

    If you’re looking for some tips on how to stick to a budget, read our guide here.

  3. Step three: Get to grips with interest

    When you borrow money, the lender will charge you a certain amount for lending the money to you which is expressed as an annual percentage rate (APR). The APR is used to help you understand the cost of borrowing and includes the interest rate (the amount you are charged for borrowing the money – a percentage of the total amount) and other additional fees and charges involved in taking out the loan.

    APR will differ from lender to lender, so it’s a good idea to do your research before applying. It’s important to make sure you understand what type of APR you’re being offered so you know what to expect. There are two types: fixed and variable. Fixed APR means the APR will remain the same for the life of your loan, while variable APR means the APR can change or fluctuate over time.

    Our research found just 44% check if the rate is fixed or variable when borrowing money from a lender whilst only a quarter of respondents understood the meaning of APR. It’s important to make sure you fully understand the terms and cost of your loan. If you want to understand more about APR, read our guide here.

    At Shawbrook, we’re committed to being transparent with everyone that applies for a loan. Our research found that UK borrowers felt misled by how Representative APRs are used in personal loans advertising. When you apply for an instant quote with us, we’ll let you know your guaranteed personalised rate, so you’ll have a clear idea of how much the loan will cost you before you decide to apply.

    To find out more about our research and our commitment to transparency, visit our Transparency page.

  4. Step four: Shop around for the best deals

    When looking for a personal loan, be sure to shop around - not just for the best deal, but for the right deal for you.

    Our survey found that only two fifths (41%) spend time shopping around to get a good deal when applying for a loan – meaning many could be missing out on finding a better product and rate. Make sure you look closely at the APR and what this means for your repayments, so you know what you’d owe if you were offered the loan.

    When researching your options, try to use lenders that offer a soft credit search. This will ensure your credit score isn’t impact when applying for quotes and reviewing your options.


  5. Step five: Read the T&Cs thoroughly

    Before taking out any form of credit, it’s important to read the terms and conditions in detail. Make sure you understand exactly what the terms are before agreeing to them, including any early repayment charges or late payment fees.

    When you take out a loan, you’ll be required to read and sign a credit agreement. This outlines the details of the loan including when payments are due, the cost of credit and your rights to withdraw. An important part of the process, our survey showed that almost two fifths (37%) said more official terms of borrowing from a financial lender would make them more inclined to borrow over asking friends and family for help.

    It might be tempting to rush reviewing terms and conditions as a way to speed up the process, but you won’t want to be caught out with terms you weren’t aware of further down the line. Make sure you are fully prepared to enter into your borrowing agreement so there are no surprises along the way. Take time to read through your pre-contractual information as well as your credit agreement to ensure you understand the terms of the loan you’re agreeing to. If there is anything you’re unsure of, talk to your lender before proceeding.


    For all the things you need to know before getting a personal loan, read our guide here.


    All loans are subject to status. The interest rate offered will vary depending on our assessment of your financial circumstances and your chosen loan amount. Terms and conditions apply.


    All stats used are from our consumer research survey of 2,000 UK adults, carried out by OnePoll in February 2022.