There are so many money blogs out there that take a very self-righteous approach to loans! They tell you never to borrow money, and to avoid debt as much as possible. Well, the reality is quite different, isn’t it readers? What other choice do you have when you’re two weeks from payday, and there are bills on the table? How else do you pay for the car repair bill when it breaks down at the side of the road? Sometimes, life happens, and you need a loan. It’s no bad thing, so long as you’re careful about the terms and interest. Without further ado, here’s how to borrow money safely.
Get the right loan for you
There are all sorts of loan and credit options out there. Each are better suited to different circumstances. Personal loans are the first and most common option. They usually have a sensible rate of interest (though it’s often best to avoid the ‘payment holiday’ option). Personal loans are perfect for emergencies, holiday loans, or unlocking some wedding money! If you’re looking for a loan on a car or house, there are more specific types of credit available. Again, it’s all about choosing the right option for your situation.
Check the interest rate
The most important aspect of any loan agreement is the interest rate. This is how much you’ll pay back to the creditor each month. These range depending on the type of loan, and your existing credit history. A typical personal loan usually has a 6-7% APR. A payday loan, however, could have anything up to (and over) 100%. It’s crucial that you understand the charges, and how much you’ll end up paying back to the creditor. Ensure the monthly repayment is affordable, and never use another loan to pay it back. That’s a cycle that will end in further debt.
Keep your credit rating in check
Your credit rating is the first thing that any lender will look at. Whether you’re applying for a credit card, a mortgage, or a car loan, your credit rating is taken into account. In some cases, it will even affect how much money you can borrow, and the rate of interest you receive. Often, you’ll be refused credit outright if you have a poor rating. You can make sure yours stays healthy and secure by paying all debts on time. Stay on top of your finances, avoid late charges, and never default on your repayments. It leaves a dangerous black mark on your record.
Borrow from friends and family
Sometimes, it’s often better to approach friends and family if you need a quick injection of money. They will usually be much more understanding about your situation. They’ll lend you money without all the added pressure. And, you can agree a repayment rate that you are comfortable with. Not everyone relishes the idea of asking loved-ones for money, but it’s a much safer way to lend. Another idea is trying to find credit card with no balance transfer fee and 0 apr – yes, they do exist, and can be a useful tool when needing to borrow money.
There’s nothing wrong with borrowing money. After all, our entire economy is based on lending! Just be careful about how much you borrow, and don’t let your credit rating suffer.