Loans – Responsible Borrowing
Borrowing may be a convenient way to purchase something that you would otherwise take a long time to save up for. In the case of buying a home, for example, a mortgage allows you to live in your home while you pay it off.
Whether you’re planning a big purchase like buying a car, getting married or need extra cash to deal with family emergencies or pay for education, sometimes borrowing may not be the best option for you.
Can you afford to borrow?
Before you decide to borrow money, it’s worth taking the time to ask yourself a couple of key questions below, and to make sure you can afford new debt repayments on top of your current expenses or commitments.
– What are you borrowing the money for? Make sure it is IMPORTANT!
– Is borrowing your best option? There may be other ways to achieve your goals, TAKE ON EXTRA JOBS!
– How much should you borrow? Borrow what you can ONLY AFFORD TO PAY!
– What is the cost of borrowing money? Check the BEST INTEREST RATE!
Before borrowing, consider the following:
. Do a budget to work out your monthly spending, savings and loans.
– Allow to have emergency funds in case you lose your job, illness, or in any emergencies.
– Borrow what you need and what you can comfortably repay, regardless if you are qualified for a higher loan amount.
– Make your payments on time to avoid penalties and pay off your debt quickly to minimize total interest payments.
– Avoid unnecessary multiple sources of credit to keep an easy track of repayments.
Situations when you should avoid borrowing:
> Problem paying everyday expenses. If you have trouble paying for daily necessities, borrowing money could put you into debt.
> Covering optional spending. If you can put off an optional purchase until you’ve saved up the money, you will avoid interest charges altogether.
> Borrowing because to settle other debts. If you’re already deep in debt, going further into debt is probably not the best solution.
Risks of borrowing too much:
Borrowing too much can leave you struggling financially as you plunge deeper into debt. Be careful about borrowing too much.
> It draws money from other important needs. If you borrow money, you have to pay interest. Money that goes towards interest payments can’t be used for other purposes, such as paying down your mortgage or meeting other obligations.
> Your credit score can suffer if you can’t pay your bills. Falling behind on your payments means it will be increasingly difficult to borrow more money for future needs. Find out more about your credit score and how it affects your borrowing.
> It can lead to higher interest payments. Lenders may charge higher interest rates on subsequent loan applications if you are already carrying a large amount of debt.