What happens when you borrow money

There is a conversation many young people have too late. No one sat down with them before they were already standing there, with a loan they had already signed.

Val is one of them. She is a character in Moving Out, a story created as part of the PROFIT project, and she sits across from her mother trying to explain a decision she thought was simple.

Mom: “You took a loan?”

Val: “I didn’t have another option.”

Mom: “How much will you pay back?”

Val: “…More than I borrowed.”

That is the moment many young people recognise. The moment something clicks, but a little too late.

Val knows she will pay back more. She knows it on paper. But she has not thought of it as a real price. She has thought of it as a solution.

What interest actually is

Val’s mom puts it simply:

“You’re not just paying for the deposit. You’re paying for time.”

That is what interest is. A payment for borrowing money now, instead of waiting until you have it yourself. The longer it takes you to repay, the more the loan costs you in total.

A concrete example: if you borrow €1,000 at 15% interest over two years, you do not pay back €1,000. You pay back closer to €1,160. The extra €160 is not a penalty. It is the price of access.

How lenders decide whether to trust you

When a bank decides whether to lend you money, and at what interest rate, they look at your financial situation: your income, your existing debts, your savings, and whether you have a buffer if something goes wrong. The stronger your financial position, the better the terms you are likely to get.

But not all lenders work this way. Quick loans, buy-now-pay-later services, and consumer credit companies often skip that analysis entirely. They make borrowing fast and easy, which is exactly what makes them risky. The less a lender asks about your situation, the more it is charging you for the convenience, usually through a much higher interest rate.

A useful rule of thumb: the easier a loan is to get, the more carefully you should read what it costs.

The freedom a loan takes from you

Val’s mom says something important:

“A loan gives you access, but it takes freedom.”

That is not a warning against borrowing. It is a description of how it works.

When you repay a loan each month, that money is committed. You cannot spend it on something else. You cannot save it for something unexpected. And as her mom asks:

“And if something changes?”

That is where many young people run into trouble, not because they borrowed for something foolish, but because they did not plan for a buffer. A change of job. An illness. An unexpected expense. Suddenly what was “tight but manageable” becomes something else entirely.

Debt is not the same as having failed

Research from Finans Danmark (2024) shows that young people’s debt rises quickly through their twenties, but that most navigate it reasonably well. The problem does not come from debt itself. It comes from debt that was not understood before it was taken on.

And this is not a Danish problem. According to the European Parliament report Making Finance Sound for Young People (2022), young people across Europe lack concrete knowledge of interest rates, credit scores, and the consequences of late payments. That holds whether you are in Spain, Poland, Italy, or Denmark.

Young people in countries where housing is expensive and difficult to access early in life are particularly exposed. Consumer loans and short-term loans with high interest rates are often the only available option there, and they are designed to look simple.

Three questions to answer before you borrow

Val does not have the answers ready. You can.

How much does this loan cost me in total? Do not only look at the monthly amount. Calculate the full amount you will pay back over the entire repayment period.

Can I afford it if something changes? Not if everything goes to plan, but if one thing goes wrong.

What does this loan give me access to, and what does it take? Val wants to move out. It is worth it to her. But she can only make that call once she understands the price.

Val ends with her own thought:

It will be tight but I get to move out, at last.

That is not a wrong conclusion. It is a good one, because she now knows what she has said yes to.

That is the difference financial understanding makes. Not that you borrow less. But that you know what you are choosing.

PROFIT is an Erasmus+ project helping young Europeans build essential financial life skills through interactive, practice-based learning tools.