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Borrow Money the Smart Way by Following these Practical Tips Before Taking Out a Loan

If big-ticket purchases are part of your plans, then you’d likely be needing to borrow money to fund those goals someday. While you may find it inevitable to take out loans, you should remain vigilant about the agreements to sign on.

Ideally, you want to make sure that you can afford to pay back the money you owe whether it’s on a mortgage or your credit cards. Here are some important things to consider when borrowing money.

Shop Around First

SkunkChunk/Shutterstock: Be mindful of the APR as it will give you an idea of how much you’ll pay back each year

Don’t rush the process and skip out on doing your research first. Shopping around will give you an idea of what’s out there and allow you to have realistic expectations of the rates you can get.

Taking proper precautions would also prevent you from making decisions that you’ll regret in the future.

One of the things you should focus on is the total amount you’ll have to pay back when you borrow money. You can determine this by taking note of the annual percentage rate (APR) and the length of your repayment period.

Set a Budget

Setting a budget before applying for a loan would also ensure that you don’t take on something that you can’t afford to pay back. Take into consideration the existing debts you may already have.

Be reminded that getting a loan today to pay other debts might only help you in the short-term and cause you more financial problems in the long run

Read the Fine Line

Amnaj Khetsamtip/Shutterstock: Read the terms of the loan carefully before signing on for it

Don’t be blinded by seemingly great offers like interest-free deals. Remember that these agreements often come with a catch.

Most of the time, you’d only enjoy the interest-free aspect if you manage to pay the loan back within a specific period of time. Failing to do so would likely leave you with a higher interest rate as a consequence.

The same can be said about ‘payment holiday’ offers on credit cards. These usually last for short periods of time and might result in you paying more.

Fees and Balances

Kite_rin/Shutterstock: Always pay more than the minimum amount on your balances

It would also help if you already have a plan in mind to pay off your debt. For example, it’s recommended that you pay 10% of your credit card balances.

Another thing you should be wary of are fees you might incur. Overdrawing your bank account would likely result in you being charged with several fees.

If you plan on overdrawing, make sure to inform your bank first.

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