As millennials, we tend to be fearful of borrowing money. Growing up during the recession and seeing the world in economic crisis, along with increasing student debt means that many of us can be reluctant to borrow money. However, sometimes in life it’s necessary for us to take the next step we need to take. Borrowing money can feel daunting, but if you go about things in the right way you can prevent yourself from falling into financial trouble. Here are some ideas for going about it.
Find The Right Loan For Your Needs
There are many thousands of different loan providers out there, each maintaining their own unique selling points suiting different individuals. finding the right loan for your needs is vital, as opting for the wrong provider could cause financial distress. Exploring a website that hosts several competing loan providers can be of real benefit, as you can compare loans with Plenti to see who can offer the best rate or package for your requirements.
The main difference between different loan packages is the interest rate, as this will dictate how much you have to pay back. A high interest rate could really affect your credit score as it can make repayments far less affordable, but often it can be hard to access low interest rate loans unless you have a near perfect credit score. Even if you do have a bad credit score then don’t fret, as there are suppliers who aim to meet your needs (for a higher fee). It’s a good idea to check out each company by reading reviews left by previous customers, as this will give you a better look into the true quality of the service provided. If a loan seems to good to be true, such as a package with a 3% interest rate despite your bad credit score, alarm bells should be ringing.
Build your credit score
Before borrowing any money, it makes sense to first get your finances in order. Find out what your credit score is, and see what you can do to improve it. Getting onto the electoral roll is one easy thing you can do, you should also check through all of your transactions and accounts and make sure everything is in order. For example, lots of people find that late payments and other ‘black marks’ have been put against their name in error. For example, if mobile phone contracts haven’t been closed properly then the last payment could go down as missed- if you speak to you whoever the creditor is they might be able to put things right for you.
Before you attempt to borrow any large sum of money (like a mortgage, car finance or other large loan) it’s worth taking out a smaller account first. A credit or store card for example can help to build your credit if you pay it back on time every month. Keep the balance low (ask for automatic limit increases to be switched off) and spend a year making payments on this. This is especially useful if you have no previous credit history, as it’s something to show lenders that you are responsible with money. With a good credit score, when it comes to borrowing money in future you’ll be given the best interest rates meaning it will cost you less overall to repay it.
Decide why you want to borrow money
Before borrowing money, it’s important to ask yourself why you want or need it. If it’s to purchase a house, a car you need for work, improve your education or to start up a business, for example, these can all be good reasons to borrow money. These are classed as ‘good debt’ as they enable you to earn more money in the future- for example, in the case of a house it will accumulate in value each year. Money for education or a car can lead to better employability and improved job prospects. However, if you want to borrow money to spend on new technology, designer clothes, holidays and other luxuries then this is you living beyond your means. It’s always better to save for these things, as loans and credit cards charge interest so you pay more back than what you originally borrowed. It’s simply not worth it unless what you need to borrow for is very important.
Of course, there are times in life when we all need a little extra help. For example if your washing machine breaks down or your car needs repairing and you don’t have the money there and then, payday loan companies can be helpful- visit the website to find out more. However, if you need to use payday loans just to get by then it’s a sign that your budget needs looking at. Using loans to make ends meet every month isn’t a healthy way to run your finances. Borrowing money isn’t a bad thing at all, but it can be if you’re using it to buy things you can’t really afford or using it just to get by as this will make your situation a lot worse.
Work the repayments into your budget
Before you sign on the dotted line for your loan, credit card, mortgage or car finance then you should sit down first and work the repayments into your budget. Don’t just take the money and try and figure it out later, or you’ll quickly end up missing payments and falling into debt. You need to know that what you’re borrowing is affordable for you, you have to be responsible and know that you can consistently make those payments every single month until the full amount is repaid. If you’re taking out a loan over five years for example, consider just how long this is and how you’ll feel still paying off what you’ve borrowed all those years into the future.
This can make you rethink whether what you’re buying with the money is really worth it too. Working repayments into your budget involves making sure that you still have cash leftover too- push yourself to the edge of your limits and any small unexpected change in your finances could result in you no longer be able to pay it. Give yourself a buffer, and consider the future. While no one can say for sure, you can ask yourself if your financial situation is secure- if you work a temporary job for example then there’s no guarantee you’ll still have it in a year meaning you could end up in a position where you can’t afford to pay it. When this happens you can end up racking up huge amounts of interest, late fees, you’ll damage your credit score and might end up having to deal with debt collectors knocking on your door.
What tips and advice would you give to anyone looking to borrow money in a responsible way?