Loans are a convenient method of gaining some extra cash quickly, whether you’ve had a bit of a financial emergency or you need extra funding for a project or purchase such as buying a new car, renovating your home, or furthering your education. However, whilst the option to borrow can certainly come in handy for many people today, failing to be a responsible borrower can bring up all kinds of problems in your life, from being unable to borrow money again in the future to having bailiffs knocking on your door to take your possessions.
So, before you apply to borrow any money, it’s important to be aware of what it takes to be a responsible borrower and be assured that you can do it. We’ve put together some top tips to help you borrow money more responsibly and stay out of financial trouble.
Tip #1. Know Your Budget
When it comes to borrowing money, it can be very tempting to take a higher amount, especially if offered. However, bear in mind that any money borrowed will need to be paid back in the future, so it’s crucial that you’re sure you can afford to pay back any loans, credit cards, or other forms of finance that you take out. The best way to do this is to get a monthly repayment figure from the lender and then work out your monthly incomings and outgoings to see whether you’ll have enough income to cover the repayments, as well as everything else. Bear in mind that whilst you can try and cut unnecessary expenditure to cover the cost of a loan, you should never sacrifice your priority bills such as rent, food, and utilities to repay a loan back – this could lead to even more problems for you.
Tip #2. Ensure You’ll Be Accepted
When it comes to applying for a loan, one of the biggest mistakes that many people make is to simply continue applying for various products until they find one that they are accepted for. However, the problem with this is that each time you are rejected, your credit rating falls temporarily, meaning that the next time you apply, you’ll be even more unlikely to get accepted for the loan. The best way to combat this issue is to check your credit report before you start. This will give you a better idea of where you stand with lenders and the type of products that are the most likely to be available to you. Some loans companies will also offer eligibility checkers that allow you to see whether the loan would be available to you or not, without the need to take a credit check first.
Tip #3. Do Your Research
Whether you are looking for a small, short-term loan or a longer-term, larger loan for a huge purchase, it’s important to shop around and do your research beforehand to ensure that you are getting the best deal. Try and find a loan that requires you to pay the lowest amount of interest; this will mean that more of your monthly repayment is actually paid towards the capital rather than in interest to your lender. The good news is that the internet has made it easier than ever before when it comes to finding the best loan deals; you can find several comparison sites that can be used to find the most suitable products for you within a matter of minutes.
Tip #4. Set Up a Regular Repayment
When you borrow a loan, you’ll most likely be given the option to set up a regular repayment, for example, a monthly direct debit that is taken straight from your bank account. It’s a very wise idea to take the opportunity to do j this since a regular, automatic repayment means that there will be little chance of you forgetting to make the payment and causing problems for yourself that could have been avoided. Bear in mind that along with missed payments, late payments can bring up a red flag on your credit report and too many of them can even make it more difficult for you to get credit in the future. You may also be charged extra for making a late payment, so it’s a good idea to set up an automatic schedule to pay on time.
Tip #5. Pay off As Much as You Can
After borrowing a loan, if you find yourself in a position where you can pay a larger amount than your usual monthly payment to get the balance down, then it’s a really good idea to do so. Clearing a large percentage of the balance of your loan will not only bring your future monthly repayments down significantly or shorten the repayment time frame; it will also look great on your credit report.
Did these tips help you? We’d love to hear from you in the comments.
Image source: Pixaby