In an ideal world we would all like to have enough money for each of our requirements; in which you never need to visit a lender to fill the cash gaps. It sounds too much like convenience and a happy life. It’s not like that? However, the reality is not so sweet and most of us have little choice in financial matters. After all, we have a multibillion-dollar lending industry that thrives on the wide gap between consumers’ credit needs.
With the advent of the FinTech industry, it has become easier than ever to borrow the required funds, for example, in a matter of a few hours you can get the loans of your choice. Many lenders even boast of extending financial assistance instantly (within a minute) too! Service and processing is as easy as it can be today.
Although loan channels have multiplied to bridge the barriers between lenders and borrowers, the basic rules for applying for a loan are basically the same. You should never borrow more than you need; and ensure the affordability of the loan at the same time. Here’s a quick list of 5 absolute rules for choosing the right loan so you’re never in the bondage of debt in your life.
1. Borrow according to your ability to pay
Whether you are a Christian or not, it is not about believing in faith; it is pragmatic not to borrow beyond your means. Always ask for a loan after evaluating your ability to pay. Borrowing more than the allowable credit limit or borrowing more than 50 percent of your income hurts your credit score and credit value.
Nowadays, it is not uncommon to borrow despite a low score, since there are always many loan offers available. Regardless of the availability of the loan, you should strictly borrow if you need it.
2. Try to borrow short term; do not borrow long term unnecessarily
While it is always advisable to ensure the affordability or ease of repayment of the loans, at the same time you should make sure that you do not extend the duration of the payment simply to keep the facilities low. Because, the greater the tenure would be; the higher the cost of the loan. When getting a loan, you should try to save as much interest on the loan as possible. In case you have temporary funding problems, you can start the loan with small installations; and later, prepay or refinance the loan to save paying additional interest on the loan.
3. Be disciplined in loan payments
One of the most common reasons for destroying credit scores is delaying payments on credit bills. Many people realize the mistake after a loan rejection. Therefore, it is advisable that the sooner you automate loan repayments and credit bills, the better for your credit health. You can also deliberately align the same payment date for multiple accounts so there are fewer problems managing the payment date. Always keep in mind: A single day’s delay is the same as a week’s delay. Therefore, it is important to pay before the term expires.
4. Try not to borrow for investment or unaccounted risks
Loans must not be used to pay for volatile risky payments or investments. Because it is a liability that must be repaid on time with the amount of interest on the loan. Therefore, the loans are not intended to finance your fixed deposits or capital funds. Also, it is important to think critically about the purpose of the loan, since a debt should always be used for important reasons in life.
5. Check your credit report
Once you apply for a loan, it’s important to keep a close eye on your credit report. You must look for ways to increase your score. In case you are running a credit bill accumulated for a few months, you need to pay off the balance on this card first. Enough would be saved on the interest component.
Similarly, if you have multiple loans running simultaneously, consider consolidating your debts and reducing your monthly debt load. Here you can also consider using the advice of an experienced loan broker to use cheaper loan alternatives, such as a loan secured against the property or a mortgage loan to reduce the debt owner’s monthly payment burden.
Keeping all of these factors in mind, as you assess your credit health and apply with confidence, your loan application is sure to be accepted, making you the boss of your own financial decisions!
