Borrowing money can feel old hat when you have credit cards in your wallet and personal loans to your name. But don’t let this everyday task blind you to some of the risks you take as a borrower. Follow these dos and don’ts of borrowing to ensure a positive borrowing experience — no matter how often you use loans.
DO Find out the 3 Primary Facets of Your Loan
The three facets of a personal loan include principal, interest, and term. Together, these details tell you a lot about what you will owe over the lifetime of your loan.
After all, most lenders apply interest and fees on top of what you borrow, so you’ll owe more than your initial loan at the end of your term. You need to know how much these will add to your principal to get a clear understanding of your costs.
The term is the length of time you have to repay your loan. This timing can affect how much you owe in the long run, as it determines how many days you might accrue interest.
DO Compare Multiple Options from Different Lenders
While there may be a chance you find the most favorable terms with the first lender you visit, there’s no guarantee this first option will be the best one available to you today.
Lenders apply varying costs and restrictions on their loans according to their internal policies, so you might qualify for a range of options. Compare at least three lenders, taking into account the three primary facets of their loans. If you’re stuck between three very similar lenders, read online reviews to tie break.
DO Check That You Can Fit Your Repayments into Your Budget
Just because a lender approves you for a loan doesn’t mean you should take their offer. A lender does its best to assess your creditworthiness, or ability to repay what you owe. But they don’t know your full financial story. They won’t know how tight your budget is before adding a new obligation.
To make sure you can juggle your current budget and the addition of a new loan, slot your repayment into your spending plan and see what happens. Do you have enough cash to go around? While you might have to put fun spending on pause, you should never delay essential bills to cover your loan.
DON’T Borrow without Having a Repayment Plan
Unless you borrow a payday cash advance, you’ll make more than one payment during the term of your loan. You might be making payments for months to come. With this in mind, you need to assess your ability to make regular payments and factor them into your long-term budget.
Ignoring this crucial step may lead to missed payments, late fees, and potential damage to your credit score. Be honest with yourself about your financial capabilities and only borrow what you can reasonably repay within the agreed-upon terms.
DON’T Overlook the Fine Print
All the research you pour into loans while searching for lenders puts you on the right path. But don’t stop there. Once you choose a lender and get approved for a loan, you have some more essential reading to do.
You cannot skim your loan contract just because you did your research earlier. Overlooking this contract can mean you miss hidden fees, variable interest rates, and other unusual clauses. By thoroughly understanding the fine print, you can avoid unpleasant surprises and make informed decisions regarding your personal loan.
DON’T Borrow Impulsively
Avoid borrowing money impulsively or for non-essential purchases. Personal loans should be used for necessary expenses or planned investments that will improve your financial situation in the long run.
Borrowing for impulse purchases or non-essential items can lead to unnecessary debt and financial strain. Take the time to evaluate your needs and explore alternative options, such as saving or budgeting, before deciding to borrow a personal loan.
And there you have it — the dos and don’ts of borrowing. Following these tips can help you become a more informed borrower.
Sharon Howe is a creative person with diverse talents. She writes engaging articles for WonderWorldSpace.com, where she works as a content writer. Writing allows Sharon to inform and captivate readers. Additionally, Sharon pursues music as a hobby, which allows her to showcase her artistic abilities in another creative area.