Borrowing money provides you with the funds to finance your activities when you are short of cash. You commit to pay the full amount, as well as any interest charged within a given time frame. It’s important to understand how borrowing affects you and your financial accounts. Here are five things to consider before you borrow money:
Are there other options available?
Borrowing is just one of the several options available as far as obtaining funds is concerned. You really need to ask yourself whether there are other sources which you can utilise, options which may be convenient and cheaper for you. If they are there, you can postpone borrowing until it is absolutely necessary. With that, you will have avoided the cost and responsibilities that come with borrowing.
What are the various borrowing options available to me?
If it is vital to borrow, you will be presented with several options. You need to weigh the merits and demerits of each. The most crucial factor should be the cost of the loan. There are some options which will be more expensive than others. Also, the terms that will be given need to be considered. Find a service that will allow flexible repayment and reasonable interest rates and charges.
Can I afford the payments?
You need to make sure that you can repay the loan with the given installments. You don’t want to default or delay payment, as this can have a negative impact on your credit score and future chances of acquiring loans. Assess your income and ensure that the repayment amount and period suit you.
Can I pay faster?
Sometimes you do not need to wait until the last installment, or pay only the minimum amount. You can opt to reduce the loan duration by paying larger installments than stipulated. You need to know whether such moves will reduce the amount of interest paid.
What are the penalties for default or delaying payments?
You need to understand the penalties which can incur upon delay or default. This will motivate you to avoid them by any means necessary.