How Much Do You Need to Borrow? Start With the Expense and Your Next Pays

Most people start with the wrong question. They ask how much they can borrow. The more useful question is how much they actually need, and whether the repayments will fit.

Those are different numbers. Getting them confused is how a $350 problem turns into a $1,000 repayment schedule. Here's a simple way to work out the right amount, whoever you end up borrowing from, or whether you need to borrow at all.

Four numbers worth keeping separate

Before doing any maths, it helps to name the four things people often blur together:

• The expense. What the thing actually costs.
• The shortfall. The part of the expense you can't cover from money that's genuinely available.
• The available limit. The most a lender says you could borrow. This is not a recommendation.
• The repayment commitment. What you'll pay back, how much each time, and when.

The goal is to borrow the shortfall, not the limit, and only if the repayments fit.

Step 1: Confirm the expense and look for other arrangements

Start with a confirmed figure: a written quote, an invoice or a bill. An estimate in your head is easy to round up.

Then check whether there's a way to cover it without borrowing:

• Can the payment be split or delayed? Many providers, including utilities, councils and some medical practices, offer payment plans. Ask what they cost in total.
• Are you entitled to a remedy? If a product has failed, consumer guarantees may mean a free repair, replacement or refund. Our guide to repairing or replacing a broken appliance explains how.
• Is there support available? Some costs, like energy bills, come with hardship programs. A free financial counsellor through the National Debt Helpline (1800 007 007) can help you check.

Step 2: Calculate your shortfall

Next, work out how much of the expense you can cover from money that's genuinely available. "Genuinely" is the key word. That means money left after protecting your essentials until your next pay: rent, groceries, fuel, utilities and existing repayments.

Our guide on how much you can spend before payday walks through that calculation.

Here's an illustration with made-up figures:

• Expense: $600 car repair
• Money genuinely available after essentials: $250
• Shortfall: $350

That $350 is the most you'd want to consider borrowing. Not $500 "just in case", and not the full $600.

Step 3: Check the total cost, not just the amount

Borrowing $350 doesn't cost $350. It costs $350 plus fees and interest. Before you compare options, find out:

• Any setup or establishment fee
• Interest, and how it's calculated
• Ongoing, account or monthly fees
• Late or missed payment fees
• Early repayment fees
• The total amount you'll repay

Comparing interest rates on their own can mislead you, especially for short loans where fees make up much of the cost. The total repayable is the number that matters. Our guide to personal loan fees and interest explains the jargon.

Step 4: Test the repayments against your next pays

Now map the repayments onto your calendar. This is where many borrowing decisions go wrong: the amount seemed fine, but the timing didn't.

Continuing the illustration, imagine a hypothetical loan of $350 with a $25 fee and $10 interest, repaid in four equal fortnightly instalments. That's $385 in total, or $96.25 each payday. These terms are invented to show the method. They are not a Beforepay offer.

For each of your next four pays, ask:

• After rent, bills, groceries and fuel, is there $96.25 left?
• Are any other repayments or annual bills due in the same weeks?
• What happens if a pay is a little lower than usual?

If the answer is yes, comfortably, the amount probably fits. If it's "only just", that's a signal to look again.

Step 5: Revisit the amount if essentials get squeezed

If the repayments would squeeze your essentials, it's worth adjusting before you commit, not after. Options include:

• Borrowing a smaller amount and covering more from savings or a payment plan
• Choosing a longer repayment period, which lowers each payment but may increase the total cost
• Delaying a non-urgent expense until you've saved part of it
• Talking to a financial counsellor if several costs are competing at once

Borrowing that leaves you short next pay often creates the next gap. It's better to find that out on paper.

How Beforepay fits

If you've done the maths and a short-term loan makes sense, here's how Beforepay's products work.

If a bill lands before payday, a Beforepay Pay Advance can bridge the gap until payday. It is a short-term loan of $50 to $2,000, repaid within 62 days in up to 4 instalments, with a fixed 5% setup fee and interest up to 24% p.a. Eligibility criteria and T&Cs apply.

For larger amounts, a Beforepay Personal Loan runs from $2,001 to $5,000 over terms of 3 to 12 months, with the same fixed 5% setup fee, interest up to 24% p.a. and a 29.50% p.a. comparison rate. Pay Advance and Personal Loans of $5,000 or less don't involve a credit check (we look at your income and spending instead), and neither product charges late fees or early repayment fees. A customer may hold only one active Beforepay loan at a time.

Every application is subject to assessment, and approval is never automatic. Even if you're offered a higher amount, you can choose to borrow only what you need. The full criteria are on the eligibility page.

Your shortfall-and-repayment worksheet

1. Confirmed cost of the expense: $____
2. Other arrangements available (payment plan, rights, support): ____
3. Money genuinely available after essentials: $____
4. Shortfall (1 minus 3): $____
5. Total repayable, including all fees and interest: $____
6. Amount and date of each repayment: ____
7. Does each repayment fit after essentials? Yes / Only just / No

If you land on "only just" or "no", go back to Step 5. And if you're still weighing it up, our six questions to ask before taking out a loan is a good next read.

This article is general information only. It does not take your personal circumstances into account and it is not financial, tax or legal advice.