In an ideal world we would all like to have enough money for each of our needs; where you never need to visit a lender to cover cash gaps. It sounds too much like convenience and a happy life. It is not like this? However, the reality is not so sweet and most of us have little choice in financial matters. After all, we have a multi-billion dollar lending industry that thrives on the vast gap in consumer credit needs.
With the advent of the FinTech industry, it has become easier than ever to borrow the required funds, for example, within a matter of a few hours you can obtain the loans of your choice. Many lenders even boast of extending financial assistance instantly (within a minute) too! Service and processing are as easy as they can be today.
Although lending channels have multiplied to bridge the gap 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 is a quick list to establish 5 absolute rules for choosing the right loan so that you are never in the thrall 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 your credit limit or borrowing more than 50 percent of your income hurts your credit score and your credit worth.
It’s not uncommon these days to borrow despite a low score, as there are always plenty of loan offers available. Regardless of loan availability, you should strictly borrow if you need it.
2. Try to borrow short term; do not borrow long-term unnecessarily
While it is always a good idea to ensure the affordability or ease of repayment of loans, at the same time you must ensure that you do not extend the repayment duration simply to keep the facilities low. Because, the greater would be the tenure; higher would be the cost of the loan. When taking out a loan, you should try to save as much as possible on the interest on the loan. In case you have temporary fund problems, you can start the loan with small installments; and later, prepay or refinance the loan to save the additional payment of the amount of 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 error after a loan rejection. Therefore, it is advisable that the sooner you automate loan repayments and credit bills, the better it is for your credit health. You can also deliberately align the same payment date for multiple accounts so there is less hassle managing the payment date. Always keep in mind: A one-day delay is the same as a one-week delay. Therefore, it is important to pay before the term expires.
4. Try not to borrow for investment or unaccounted risks
Loans should not be used to pay for investments or risky volatile payments. Because it is a liability that must be returned 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 should look for ways to increase your score. In case you are running a credit bill accumulated for a few months, you must pay off the balance on this card first. Enough would be saved on the interest component.
Likewise, if you have multiple loans running simultaneously, consider consolidating your debts and lowering your monthly debt load. Here you may also consider using the advice of an experienced loan broker to use cheaper loan alternatives, such as a home equity loan or a mortgage loan to reduce the homeowner’s monthly payment burden of debt.
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!