How to Borrow Responsibly
When taking out a loan there are a lot of responsibilities. There may be times when borrowing a loan may be the only viable option for you. For example, whenever any unplanned needs arise and you have no saving, loans can be a lifesaver. But before you choose to apply for a loan you should first ask yourself if you really need a loan, if yes then short term of long term loan. It is important that you completely understand the different type of credit products available in the market to meet your needs.
Basically, there are two types of loans available, either loan term or short term. Both these loans have different maximum interest rates. Therefore, ahead of taking out a loan, it is necessary that you look at which type of loan will best suit you. It is important that you choose a reputable lender who offers competitive and personalized interest rates. To ensure there is no risk of defaulting, the lender will do a comprehensive affordability assessment.
To borrow responsibly, you should ensure that you borrow only the amount of cash you can repay. Make sure you understand the various cost involved in borrowing a loan. You should ask the creditors to provide you detailed information about the loan you are applying. It is important to understand what you sign. Also budget the repayment ahead of signing the loan agreement.
If you are unable to pay debts on time, you should inform the creditor. New arrangement with be made by the creditor. Never forget to compare the interest rates. Remember that delay in repayment will increase the interest rates and installments. It is also recommended that you calculate extra costs such as administration fees, renewal charges, and processing fees ahead of entering into a loan agreement.
As per the National Credit Act, a creditor should provider borrowers with a clear and understandable credit agreement, quote about the agreement five days prior to signing and information about the loan so that borrowers can find out exactly what all the costs would be. If a creditor turns down a loan application, a borrower has the right to know why.
Budgeting loans before you get it is vital. It will help you to find out what the maximum monthly installment would be and if you can afford it. This installment will let you determine how much loan you can take out. You should make sure that if the interest rate increases while repaying back, you can afford it.
Almost everyone today borrows a loan for something or the other. Managing the loan well and repaying back responsibly should never cause you any problem. In order to borrow responsibly you should make certain never to spend more than 10% of your income on repayment of your debt. Once you have calculated that you can afford to get a loan and made a decision you can ask the creditor to explain it is in a simple and understandable way to you. One major reason why people face problems with repayment is because they fail to understand about the effect that interest rates, loan amounts and loan terms can have on the loan repayments.
You should understand that the amount you borrow against a loan is not the exact amount that you are going to repay back. Every time you apply for a loan you will have to pay more than what the amount you have originally borrowed, as the end amount will include interest and other charges.
A loan should never be used for bad debt or for an overseas holiday or for weddings. You should always take out a loan to meet your financial needs and not wants. For instance, applying loans for home improvements will increase the value of your property and applying for education loan will secure your children’s future, both of which give good reason for taking out a loan.