Have you been eyeing that dream vacation, new car, or home renovation, but it feels just out of reach without borrowing money? We've all been there—life throws exciting (and sometimes overwhelming) opportunities at us that often come with a hefty price tag. Borrowing can feel like a quick fix to making those dreams a reality, but it’s not something to jump into without proper thought. Trust me, I’ve learned this firsthand.
When I was in my late 20s, I decided to renovate my tiny 800-square-foot condo. The Pinterest boards were ready, and I couldn’t wait to transform my outdated space into a modern escape. But financing—for a big expense like this—was the something I hadn’t really prepared for. Spoiler alert: I made a few mistakes.
Borrowing can totally work in your favor if done wisely! And through my experience of making a couple of financial missteps and learning the hard way, I now preach the gospel of asking yourself the right questions before committing to any big loans. Here are five questions I wish I had asked myself back then, and that you should ask yourself now before borrowing for any big purchase.
1. Do I need this purchase, or do I just want it?
This question can sting a little, but it’s the most important one to get brutally honest about. Ask yourself if the big purchase is essential right now or if it’s something you simply desire in the moment.
I remember standing in the tile store, convincing myself that glossy Italian tiles for my condo were “a must” because, hey, I deserved it, right? Looking back, I realize they were more of a want than a need. Could’ve used that money elsewhere or upgraded later.
If it’s something like buying a reliable car or covering a medical expense, those often fall under the need category. But if it’s an expansive backyard pool when you’re already coping with a mountain of student debt, maybe it’s time to take a step back and reevaluate. Wants are fun, but delaying gratification can sometimes make the final payoff even sweeter.
Tip for tackling the want vs. need question:
Try sitting on the decision for a couple of weeks. Without the urgency and excitement in the moment, you might find the idea doesn’t feel as pressing anymore.
2. Can I comfortably afford the repayments?
This one may seem obvious, but it’s way too easy to overlook! I’ve made the mistake of only thinking, “I can probably swing it,” instead of actually crunching the numbers. Spoiler alert—it didn’t go as planned.
Take the time to dig into your finances. Write down your monthly income, list every recurring expense, and figure out where loan repayments would fit in. And remember, just because a lender offers you a certain amount doesn’t mean you have to borrow that much. (Trust me, you don’t want to max out your borrowing limits. Life doesn’t work that smoothly, and surprise expenses will always sneak up on you!)
When I borrowed for my renovation, I didn’t properly account for the higher-than-expected interest rate that crept along. Those extra monthly payments stacked up and hit harder than I’d anticipated. It made sticking to my regular budget an uphill climb until I got things under control.
Tip for staying in the safe zone:
Use a loan calculator to simulate your borrowing. If the repayments feel like they’d tip your budget too far, reduce your borrowing amount or rethink your timeline.
3. What’s the total cost, including interest?
Numbers don’t lie, but sometimes they can deceive—particularly the interest rate. Loans often look much more appealing when you focus on the monthly repayments. However, the real magic (and often the pain) lies in calculating the total cost once interest is added.
For instance, say you’re borrowing $10,000 at an interest rate that seems small—a humble 6%. Sounds manageable, right? But if it's on a 5-year term, you’re looking at paying around $11,600 in total (that extra $1,600 might feel minor at first glance until you realize that’s money you’re not spending or saving elsewhere).
I made the mistake of focusing only on my perceived affordability of monthly payments without fully considering how much I was paying just in interest over time. Once I broke it down and saw the eye-watering added cost, I knew I’d miscalculated. Now, I never borrow without calculating the full scope of financial commitment.
Tip for spotting hidden costs:
Compare interest rates and loan terms across multiple lenders, and always ask yourself whether the shorter loan term (often higher payments but less interest overall) might save you long-term.
4. Have I explored all alternatives?
Here’s a game-changing truth I wish someone had grilled into my brain years ago—there are often other ways to make big purchases happen without borrowing. Yes, loans can be convenient, but don’t overlook options such as saving up, scaling back on other expenses, tackling the purchase incrementally, or even buying second-hand.
For that renovation I burned cash on? Turns out I could’ve postponed the fancy tiles or focused only on the kitchen first, rather than tackling the whole home in one go. If I’d paced myself, I wouldn’t have had to borrow quite as much—or deal with the stress of those increased payments.
The same goes for any purchase—can you downsize, delay, or approach it creatively? Sometimes you’ll find that small adjustments save you big money without borrowing at all.
Tip for finding creative solutions:
Make a list of priorities for your big purchase. Ask yourself which parts are non-negotiable and which ones you could tweak or postpone.
5. How will borrowing benefit me in the future?
Here’s the kicker—you need to ask yourself if this borrowing will improve your life in the long run or just lead to more financial stress. Ideally, big purchases should provide some level of return on investment, whether financial, personal, or emotional.
For example, buying a reliable car might allow you to expand your job opportunities. A home renovation could increase your property’s value. But, on the other hand, a fancy vacation? While it’s a beautiful (and well-deserved) escape, it doesn’t exactly provide long-term value.
When deciding to borrow, think one, three, and even five years down the line. How will this purchase serve you? Will you look back and feel like it was worth every penny, or will you wish you’d approached it differently?
Tip for keeping the focus on ROI:
If the benefits of your big purchase don’t outweigh the loan’s costs (including those pesky interest fees), it may be time to reconsider or revisit your options.
Make the Smart Borrower Move!
Borrowing money doesn’t have to feel daunting. With a little self-reflection and some honest evaluations, you can approach big purchases with confidence and clarity. By asking yourself the five questions above and taking your time to assess the situation carefully, you ensure that your financial decisions align with your long-term goals and give real value back to your life.
Trust me, I learned it the hard way and now enjoy making financial choices that serve me better in the long run.
Got your questions answered and feel ready to tackle that big decision? Go with your head, not just your heart. The perfect purchase—and the perfect payment plan—is waiting for you.
