Leave it a loan?

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

- By LARA OWEN

Loans can smooth out big purchases and spread the cost of essentials, but they can also deepen money worries if taken on for the wrong reasons or without a realistic plan. So when does borrowing make sense? And when should you step back?

Loans aren’t inherently bad, explains Obi Nnochiri, chartered tax adviser and private client consultant at St James's Place.

“Taking out a loan can make financial sense when it is used to fund something that provides long-term value or improves financial resilience,” he says, “such as buying a home, investing in education or skills, consolidating expensive existing debt or covering a short-term 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”.