Tips on Borrowing Money For Personal Finances
Borrowing money can often be viewed as a luxury or a necessary evil, depending on the situation. While sometimes life events necessitate borrowing money to getting out of a tough spot, irresponsible spending is what puts the majority of people in dept.
Regardless of the reason for borrowing, responsible lending starts with the consumer. Being responsible can mitigate the risk of getting into a worse situation with debt and drastically improve one’s credit score. Here are some ways to borrow money responsibly.
Take Only What You Need
When you are approved for a loan, you are often presented with the maximum amount you can take. It can be quite tempting to take it all, but doing so if you don’t need the full amount can set you up for failure. Practice some self-control and limit yourself to the original amount you had planned on taking.
Naturally, there are some exceptions to the rule. If the exact amount you need is unclear, taking the total available amount with the intention of using only what you need is sensible. For this approach to work in your favor, you must have the self-control to not spend the excess. It will also greatly depend on the type of loan you take. For example, with a builder’s loan, you can draw what you need at a given time. With some loans, an early repayment penalty might apply.
Make Payments on Time
Borrowing money won’t negatively impact your credit score, however, failing to make your payments on time will. On the other hand, making loan payments on time will drastically improve your credit score as time goes by.
Unfortunately, situations arise and missing a payment might be unavoidable. If this is the case, contact your lender to let them know that the issue has arisen and see what your options are. By being proactive and making contact, it lets your lender know that you are taking responsibility and not intentionally defaulting on your payments. Depending on the scenario, your lender may be understanding and offset any penalties.
Take Time to Understand the Loan
If a loan sounds too good to be true, it probably is. Thoroughly read the fine print and don’t hesitate to ask questions before signing paperwork. Also, take time to read about the legislation surrounding responsible lending to ensure borrower safety. If your lender isn’t adhering to the regulatory aspects of lending money, you have a right to report them.
Should you use a reputable organization to get your loan, there should be no need to worry about hidden fees and fine print. Lenders are legally required to clearly outline the terms, fees, and interest rates. If you feel as though a potential lender isn’t being entirely forthcoming, don’t sign anything and move on.
Get a Short-term Loan
If possible, get a short-term loan rather than a longer-term loan. While your payments might be higher with a short-term loan, you will ultimately save on interest. If you simply need a small amount of cash to get you through during a tough time, consider using a payday loan rather than a longer-term option.
If you have a decent credit rating, you may be eligible for a low-interest loan or line of credit. Look at all your short-term options and choose the one that works best for you. If you do take a longer-term loan with the intention of paying it off early, look at any fees for early repayment.
Mind Your Credit Rating
While it is possible to get loans with a poor credit rating, working to improve and maintain your rating will open more doors for future borrowing opportunities. By borrowing responsibly, you will eventually get to a place of financial stability and spend your hard-earned dollars on things that matter.