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One of the most common reasons for borrowing is to more evenly distribute your outgoings. A repayment schedule allows you to pay off a purchase in instalments over time. That way, you don’t have to eat into your savings every time you want to buy something at the more expensive end of the scale. This is particularly pertinent at the time of writing, when it would be a good idea for everyone to have a bit of a financial buffer.

Savings or borrowing?

For the most part, people like to use the money they already have. But if you’re unexpectedly hit with costs you can’t avoid paying, you often have to decide whether to dip into (or decimate) the savings you’ve been building up all those years or, for example, to take out a small loan and leave that buffer intact.

At the same time, small loans can be a boon for those who have trouble saving at the best of times. If you’re that sort of person, and you suddenly have to cough up a lot of cash, such a loan could be just the thing. On the whole, people tend to weigh up the pros and cons of borrowing money before taking out a loan, meaning they can then manage to repay it. A loan is one way of achieving your goals and turning wishes into reality, and gives you the chance to pay for that privilege over a longer period of time.

Small loan or hire purchase?

Lots of people favour consumer credit because of the flexibility it offers. Here’s an example: say your apartment’s crying out for some DIY, and none of it will come cheap. But instead of buying the expensive power tools you’ll need with hire purchase and entering into a plethora of contracts to do so, it might make more sense for you to take out a home renovation loan. That way you get all the money you need in one go, and if there’s any left over after you’ve bought the tools you want, you can always stock up on other things that will come in handy as you embark on your big fix. A single contract makes more sense financially than a series of different ones as well, since you’ll save on fees. The interest rate on a home renovation loan is often lower than the rate charged for hire purchase, too.

Moreover, some banks – Coop being one of them – let their clients repay small loans ahead of time free of charge. This means that if you find yourself in a position to pay off your loan early, you can do so without incurring any additional fees. Also, a lot of lenders are pretty flexible these days when it comes to paying off loans because of developments in financial technology, with repayment schedules being drawn up based on the options open to the borrower.

When should you avoid consumer credit?

You should think twice about consumer credit if you’d be using it to pay off ongoing monthly costs. If you find yourself in that sort of situation, the first thing you need to do is sit down and cast a critical eye over your income and expenditure. Your financial needs, and everything you do with your money, are things you should always think about very carefully. A consumer loan isn’t a sensible way of covering the everyday cost of food, transport and household bills. If you do take one out for that reason, all you’re doing is putting off dealing with the problem rather than solving it – and that could make things much harder for you further down the line.

A small loan is a quick and easy way of getting what you want or need, but before signing on the dotted line you should think long and hard about whether you’ll be able to pay it off.