Credit is a sure way of getting a financial boost when you are strapped for cash. And to many, a life without credit is unimaginable and unrealistic. To a point, that’s true because credit gives you the power to acquire crucial assets like a home or a car. In its absence, you could take several years to purchase a house with your income savings. However, the convenience is not without flipsides and benefits can only be reaped when credit is used responsibly.
In the recent past, loan applications and approvals were a struggle filled with tons of paperwork and rejections were frequent and final. Today, credit has become so common and easy to access for most people. In fact, you get financed at the touch of a button.
While this is a breakthrough in the financial sector, it also poses a threat of financial slavery through cyclical debt. To help you practice responsible borrowing, this article will look into a few ways to practice responsible borrowing.
Prepare a budget before borrowing
Most people will be quick to make a loan application to sort out a pressing issue. While there is nothing wrong with responding promptly to a potential crisis, there is a real risk of funds misappropriation. To make sure that the funds will be efficiently directed towards the objective in mind, figure out what needs to be accomplished and make a simple budget.
The budget will act as a guide on how much you should take as well as the scope of expenditure. Anything that is unrelated to your purpose of borrowing should be locked out. At first, this might seem difficult but it really pays off because you get the most out of your loan. And nobody wants to repay money that they had spent inappropriately.
Shop around and compare loan products
When in a tight financial situation, it’s easy to jump on the first offer that you come across out of sheer neediness. As with most products, $5000 loans come in many varieties and a little patience can make the difference between being stuck with a predatory lender and landing a fulfilling financial support.
Compare at least three of the best loan providers before settling on the one matching your needs. To sort out the best from mediocre lenders, look out for outstanding features of the loan products on offer. The features could be satisfaction guarantees, free early payments, and the available loan charges. Some lenders will have loan products that are only beneficial in the short run but very unforgiving in the long run. Therefore, don’t just settle for an appealing deal but look closer for the long-term implications like cost and penalties.
Restrict yourself to what you need only
When making a loan application, it’s easy to be drawn towards taking a slightly higher amount than needed. While this could be a good way for creating a financial buffer, the most of the money above what is needed can be easily misused. This tendency is normal when you apply for a loan and find that your qualifications are higher than the amount applied for. The lender may offer a higher amount although it was not in your initial plan.
It should be noted that a higher amount doesn’t mean that you benefit more. Actually, it’s possible to get more from less when sound planning is observed and executed. In most cases, excess funds are the major triggers to missed project objectives because you get carried away easily.
Determine what you need to borrow and create a plan that will guide you in spending the amount.
Always pay back in time
Before taking realistic loans, spend some time on assessing your capability to pay the money within the stipulated time. Typically, a healthy loan should be comfortably paid back without forcing you to make extreme changes to your lifestyle. When assessing the affordability of the loan, make sure that monthly payments will not exceed 40% of your monthly income.
Even the most affordable loan has the potential to become ridiculously expensive if you can’t observe the payment schedule. One great way of making sure the payments are made on time is by setting up automatic payments from your account. This way, you’ll avoid unnecessary charges on the loan and also maintain a good credit score.
Credit can be very beneficial when used diligently and within the right plans. Financial gains from credit financing are potent and real but care must be taken during borrowing. Because of the prevalent incidents of people who have suffered financially from loans, it is your duty to observe due diligence in what you do with the funds.
Commit to always run a background check on a lender before deciding to work with them, and know your obligations in the agreement.