Leave it a loan?

AS the UK experiences a cost-ofliving squeeze, it's never been more tempting to borrow.

- By LARA OWEN

Loans can smooth out big life purchases and spread the cost of essentials, but they can just as easily deepen money worries if they're taken on for the wrong reasons or without a realistic plan to repay them.

So, when does borrowing make sense? And when should you step back?

Loans aren’t inherently bad, explains chartered tax adviser and private client consultant at St. James's Place, Obi Nnochiri, who also says the key is what you use them for.

“Taking out a loan can make financial sense when it is used to fund something that provides longterm value or improves financial resilience,” he says, “such as buying a home, investing in education or skills, consolidating expensive existing debt or covering a shortterm cashflow gap with a clear repayment plan”

Obi's last point is crucial. A loan should support stability - not postpone a financial crisis.

Money Wellness’ external relations director, Sebrina McCullough, says a loan “can make sense if it genuinely improves your situation in the long run. Where people often come unstuck is borrowing to plug a gap that’s really about ongoing affordability”.

Her team regularly hears from people who have used credit simply to cover everyday bills. That, she warns, “is usually a sign borrowing will make things harder, not easier’.