Apr 14, 2025

Three people looking at documents

Most people reach a point in their lives when they need to know how to borrow money. Whether you want to make a large purchase or an unexpected expense arises, borrowing might be the next step when your savings aren’t enough.

There’s more to borrowing money than finding a lender, signing on the dotted line, and receiving the funds. You need to know how to pick the right loan for your financial goals.

Before you apply for a loan or borrow from other sources, you hone your basic understanding of borrowing money. We’ve outlined the initial steps, and some tips.

Table of contents

  1. Search for a lender you can trust
  2. Approach borrowing from family or friends with care
  3. Look beyond interest rates
  4. Know why you’re borrowing
  5. Make a repayment plan to pay off your debt faster
  6. Consider all your borrowing options
  7. Review the terms of any loan agreement
  8. Prioritize your spending
  9. Limit what you borrow
  10. Know that reaching financial goals may take time

1. Search for a lender you can trust

When you look for a loan, you will want to look for a bank or online lender with a good reputation. As with any other product or service, reading online reviews is a great way to gauge other people’s experiences with a lender.

You can also compare top lenders and rates on various online sites. Try to avoid untested money-borrowing apps and payday lenders, which can charge annual percentage rates (APRs) of up to 400%.  By comparison, Discover® Personal Loans offers a fixed interest rate from 7.99% to 24.99%.

2. Approach borrowing from family or friends with care

While you might trust friends and family members, unpaid debt can damage relationships.

If you decide to borrow from someone you know, make the transaction as clean as possible by drawing up a written agreement with set payback terms. A written agreement is not only a good idea to protect your relationship; the IRS has rules about loans between family members to ensure that the loan is not treated as a gift. You may want to check with a tax professional before signing any agreement.

It may be best to avoid borrowing from people in your circle, if possible. Instead, search for a bank or nonprofit credit counselor to discuss your options.

One solution could be a personal loan. In addition to helping you avoid borrowing from a friend, a personal loan could save you money on interest compared to using a higher-interest credit card for an unexpected expense. Plus, you’ll be able to manage your debt payoff with a set regular monthly payment that fits your budget. 

3. Look beyond interest rates

Whether you’re thinking about borrowing from a bank or using a credit card, make sure you know the full cost of borrowing the money. You can do that by learning about the difference between APR and interest rates. This will help you better understand the total amount you will pay in interest and fees over the life of the loan.

Understanding the total cost of borrowing for any of the loans you are considering can help you identify the cheapest ways to borrow money.

4. Know why you’re borrowing

You don’t want to borrow money just to borrow money. You should have a clear idea of why you need the funds. For example, do you want to consolidate debt at a lower rate, pay medical bills, or pay for a home remodeling project?

Whatever it is, make sure you know exactly how much you need so you can borrow close to that amount. If you take out a loan that’s bigger than you need, you’ll be charged interest on the larger amount and pay more for the loan than you really have to.

5. Make a repayment plan to pay off your debt faster

Before getting the funds, make a plan for paying back the money. That way, you can minimize the impact of the loan on your finances in the short and long terms.

With Discover, you can see what your loan rate and set regular payment could be before you apply with no impact to your credit. This lets you work your payments into your budget, which could simplify your finances and give you peace of mind.

6. Consider all your borrowing options

Not all loans are the same. It’s important to keep this in mind so you can choose the right product for your situation and, ideally, borrow as inexpensively as possible.

For example, there are differences between a personal loan, a personal line of credit, and a home equity loan.* Knowing the pros and cons of each of your options will help you make an informed decision.

One of the advantages of a personal loan is that it doesn’t require collateral. That is, you don’t need to secure the loan with your house or car. And unlike revolving credit lines, you will know at the start exactly how long it will take you to become debt free.

7. Review the terms of any loan agreement

Just as there are different ways to borrow money, lenders might offer different repayment terms or charge different fees for the same kind of loan. For example, if you are interested in a personal loan, don’t assume that every bank will offer the same personal loan agreement.

Shop around and compare APR, loan agreement terms, customer service, and the trustworthiness of the lender. You’ll also want to understand what factors can affect the personal loan rates you receive.

Don’t forget about fees, which can add up fast. With Discover, there are no fees of any kind as long as you pay on time . 

8. Prioritize your spending

If you’re borrowing money for more than one expense, you will want to think about your priorities. Should you pay for home repairs first, then medical bills? Or should you pay for education expenses, then tackle projects around your home?

Decide on your most crucial needs ahead of time to help you get the most out of the money you borrow.

9. Limit what you borrow

A good rule of thumb is to assess your overall finances so that you apply only for the amount you need, whether you’re looking to consolidate higher-interest debt or finance a major expense.

It would be unwise to borrow more money than you need—especially if you’re not sure you’ll be able to pay back a larger amount on time. So tally up higher-interest debts or large expenses, and apply for only that amount.

10. Know that reaching financial goals may take time

Whether you’re searching for a lender or working to pay down your current debt, try to stay patient and follow your plan. A thoughtful approach will help you get the most out of the money you borrow now and help you reach your financial goals in the future.

Want to learn more about applying for a personal loan?

Learn About Getting a Personal Loan

*Discover does not offer a line of credit.

Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.

The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover Bank or its affiliates.