Responsible Borrowing: How Much Should You Really Borrow Short-Term?

Short-term loans can help when you need money quickly — for example, to cover an unexpected car bill, urgent home repair or a short-lived cashflow gap. But they’re also one of the most expensive forms of borrowing in the UK. That’s why understanding how much you should actually borrow is one of the most important decisions you can make before applying.

This guide explains what responsible borrowing really means, how lenders assess affordability, and how to

work out the right amount for your situation.

What Does “Responsible Borrowing” Mean in the UK?

In the UK, responsible borrowing is based on two principles:

1. Only borrow what you can comfortably afford to repay

This includes both:

• the full loan amount

• interest and fees

• any potential late or missed-payment charges

2. Borrow the minimum amount required to solve the problem

Short-term loans are designed for temporary cash needs, not long-term finance. Borrowing more than you need increases the total cost and makes it harder to repay on time.

The Financial Conduct Authority (FCA) requires lenders to check affordability and ensure that taking out a short-term loan will not cause you financial harm. But ultimately, you are responsible for deciding how much is sensible.

How to Work Out How Much You Should Borrow

Here’s a simple decision framework used in responsible-lending assessments and financial-wellbeing guidance.

1. Identify the exact cost of the expense

Start with the real number — not an estimate.

Examples:

• Car repair: £320

• Emergency dentist: £180

• Boiler repair: £240

Borrowing an extra £100 “just in case” increases the cost unnecessarily.

2. Review your monthly income and essential bills

List your monthly take-home pay, then subtract essentials such as:

• Rent or mortgage

• Council tax

• Utilities

• Food

• Travel

• Childcare

• Existing credit or loan repayments

This gives you your true disposable income.

If you have £250 spare after essentials, borrowing £300 due next month is risky — but borrowing £150 may be manageable.

3. Check your repayment date and loan term

Short-term loans normally run from 1 to 12 months.

A shorter loan:

✔ costs less in interest✘ requires larger monthly repayments

A slightly longer loan:

✔ spreads payments more affordably✘ increases total interest paid

Choose the term that creates repayments you can comfortably handle, not the one with the lowest total cost.

4. Use the “50/30 Rule” for affordability

A good rule of thumb:

Your loan repayment should not exceed 50% of your monthly disposable income.

Example: If you have £200 left after essentials, your repayment should ideally be £100 or less.

This ensures you still have flexibility for groceries, fuel, or unexpected costs.

5. Consider whether you have alternative options

You may not need to borrow the full amount if you can cover part of it using:

• Savings

• A small interest-free overdraft

• A family contribution

• A payment plan with the service provider

• A credit union loan

• An emergency fund

Borrowing only the part you absolutely cannot cover is one of the most effective ways to stay responsible.

Why Borrowing Too Much Is Risky

Borrowing more than needed can cause:

1. Higher total interest

Short-term loans usually have higher APRs than long-term credit, so extra borrowing becomes more expensive.

2. Increased risk of late or missed payments

Larger repayments make budgeting tighter and raise the likelihood of falling behind.

3. A negative impact on your credit score

Missed or late payments stay on your credit file for up to 6 years.

4. A cycle of top-up borrowing

Over-borrowing often leads to needing additional credit later — something the FCA specifically warns against.

Why Borrowing Too Little Is Also a Problem

Borrowing less than you need can leave the original issue unresolved — leading to:

• more borrowing later

• repeated credit applications

• multiple credit checks

• increased costs

If the repair is £310, borrowing £150 doesn’t solve the problem. Borrow the correct amount, not an artificially low one.

How UK Lenders Assess What You Can Afford

All FCA-regulated lenders must carry out affordability checks. This typically includes:

• Credit file review (soft or hard search)

• Verified income assessment

• Analysis of regular expenses

• Existing credit commitments

• Previous credit behaviour

They are looking for evidence that the loan repayment will not cause “financial distress or harm”.

But lender approval ≠ affordability for you. Their job is to assess risk; your job is to make the right personal decision.

Example: How to Decide the Right Borrowing Amount

Scenario:Your washing machine has broken. A repair costs £180.

Your disposable income is £220 per month.

A 3-month loan might cost £70 per month.

This is safe — repayments equal 32% of your disposable income.

Borrowing £300 “for extras” would raise repayments to ~£115, which is more than half your disposable income. That becomes risky.

When You Should Not Take Out a Short-Term Loan

Avoid borrowing if:

• You are already behind on bills

• You have no realistic way to repay on time

• You would need to borrow again to cover repayments

• You don’t know the exact cost of the expense

• Your income is unstable month-to-month

In these situations, alternative support — such as credit unions, budgeting help, or debt-advice services — may be safer.

Key Takeaway: Borrow the Minimum Amount That Solves the Problem

Responsible borrowing is simple:

• Borrow only what you need

• Borrow what you can genuinely afford to repay

• Borrow for the shortest term that keeps repayments comfortable

This keeps costs down, protects your credit score, and prevents financial stress.