Borrowing Responsibly When You Need a Loan
Despite careful planning and budgeting, people fall upon hard times. Unexpected expenses arise and jobs are lost, offsetting the efforts made by individuals who work hard to get by. When these situations arise, getting a loan is sometimes the only option for survival.
Borrowing money doesn’t have to be a bad experience. In fact, responsible borrowing can help improve your credit score over time. It’s important to know how to borrow responsibly and get the right type of loan for your needs. Here is some great financial advice for people that need a loan and want to borrow responsibly.
Take Only What You Need
Credit card companies are notorious for trying to upsell you on credit cards and increase your limit. Think about it critically: if they give you more credit, you’re more likely to spend it and end up owing the company more money in interest. While having a buffer is a positive thing, taking too much can be too tempting and cause a lot of damage.
When you’re borrowing money, figure out how much you need to get by and round up slightly to add some padding for further unexpected expenses. Put any leftover money in an account that isn’t readily accessible, and pay back your bills on time. If you only need enough to get by between paydays, get a short-term loan and pay it back as soon as possible.
If you need to take a loan for a specific reason, whether it be a new vehicle or once-in-a-lifetime trip opportunity that you can’t turn down, talk to the experts first. Rather than taking the first option that presents itself to you for borrowing, consulting with an expert may tell you the best way to go about doing things specific to your needs.
Be sure to do your research about the financial advisor or loan company that you choose to borrow from. You want to know that you’re in good hands and that the expert you speak to knows the subject inside, outside, and upside down. When it comes to responsible borrowing, knowledge is your best friend.
Pay Your Debts on Time
Look at the terms of your loan before you sign anything, and be sure to pay them on time. If you can’t make a payment, don’t just let it default. Instead, reach out to the borrowing organization and tell them about your issue. Cite the reason that you’re unable to pay and when you will be paying the bill. If it’s a one-time thing and you handle the issue properly, the lender may waive any fees associated with your late payment.
You’ll also want to make yourself knowledgeable about any penalties for early payment. As lending companies make money on the interest charges of a loan, they don’t necessarily want you to pay it back early. If that’s the case, it might be worth keeping the money in a separate account and paying back your loan according to the schedule.
Know Which Terms Work for You
The idea of a short-term loan with high interest may be daunting when you compare it with a long-term loan with low interest. However, in most cases, you’d actually be paying more with a long-term, low-interest loan than you would with a short-term or payday loan. If you know you can pay the money back in a short period, you need not worry about the high interest rate. If, however, you know it’s going to be a while, the long-term loan is a better option.
Being a responsible borrower means advocating for yourself, practicing self-control, and thinking critically about your income and expenditures. Keeping a level head and keeping these tips in mind will help you be financially responsible when taking a loan.