Providing you do it smartly, borrowing money can make achieving your goals financially possible.

However, fail to do your homework and it could end up being more of burden than you bargained for.

So no matter why you need the money or what your financial circumstances are, it makes sense to get the cheapest deal possible.

After all, paying interest on your borrowing is essentially a waste of your hard earned cash, which is why it makes sense to research your options and make an informed decision about the best option available to you.

When comparing your options it's a good idea to look at the total you'll have to pay out once interest and charges are factored into the equation.

It'll then be easier to see which means of borrowing will cost you less overall, and whether what you're spending your money on is really worth the cost.

If the total you'll need to pay out is just too much, perhaps look for a cheaper alternative or start saving so you can pay in cash and cut the cost.

Here are the most common reasons for needing to borrow money and the cheapest ways to go about doing it so you don't end up paying through the nose.

Check the APR

An APR advertised on any kind of credit, whether it is a credit card, loan, or overdraft, represents the cost of borrowing. It stands for Annual Percentage Rate and illustrates how much your credit card, loan, or other form of credit will cost per year.

For example, if you had a loan with an APR of 7.7%, this would mean that for each year that the loan was outstanding, 7.7% of the amount borrowed would be added to the total amount you would have to repay.

The APR figure will take into account all fees and charges over the year, so it is a good guideline for exactly how much your loan, credit card, or other form of borrowing will cost.

What is typical APR?

While an APR advertised on any line of credit would give you a good idea of how much the borrowing would cost, the issue occurs because most lenders do not simply advertise an APR, but rather a 'typical' APR.

This means the APR you will be offered if you applied for the credit card or loan may not in fact be the same as the rate advertised.

This is because many lenders operate on what is known as risk-based pricing, meaning that the APR you will in reality be offered on your borrowing is dependent on a number of factors; the foremost being how high-risk a borrower you are perceived to be.

If your lender perceives you to be a high-risk borrower it's likely that you will be offered a higher APR (or even refused credit altogether). As a borrower your degree of risk is determined by your credit history and past credit behaviour.

If an APR is advertised as 'typical' it means that the lender must, by law, offer this rate to a minimum of 2 out of every 3 borrowers who apply for the credit. This means that 66% of all applicants must receive this rate for it to be classed as typical, so take it with a pinch of salt; what you are ultimately offered may in fact be significantly higher.