Money is evil. It is the basic need. When someone is in need of money, he has no other option but to borrow it. Borrowing money can be for something as small as a mobile phone to buying house, cars etc. In this blog, we are going to discuss on a few key borrowing rules, a borrower must keep in mind before going ahead with borrowing. Borrowing money can be great when you are in the urgent need of it, but there are alot of risks associated to it. A few of them include:
- High rate of interest: When you borrow money, you have to pay some money apart from the sum that is borrowed. The extra money which you have to pay is the interest and because of interest, the borrowing is generally expensive.
- Repaying the money: If you are not able to repay the money as per the terms already discussed, then you might have a tough time ahead. This will directly affect your credit score. (A 3 digit number, that states your creditworthiness to repay the loan.) Once the credit score is affected, this might affect you in the future as well-in terms of rates on your future loans, getting loans etc.
- Budget flexibility: If you owe money to someone, there are high chances that it will affect your monthly budget. Some amount of money goes to the person from whom you borrowed it.
Here are some of the key points which you need to keep in mind while borrowing:
- Avoid multiple loan application: You should avoid sending loan application to many lenders at a time. The lenders check the history and there is a possibility that it might get rejected by the lenders. Also, avoid applying for loans for small issues. Apply for loan only when you actually need it. You might end up paying alot of interest to different lenders unnecessarily. And this in turn will upset your yearly/monthly budget.
- Beware of various fees: Generally, extra charges or fees are not discussed. Lenders offer a very attractive deal/ package just to let the borrower sink in and once the borrower is in for the deal, the lenders come up with various charges which were never discussed initially. As a smart borrower, it is very essential for you to know before hand as to what are the late payment fee structure and extra charges.
- Credit history: Credit history plays a major role when it comes to borrowing. One must always have a neat credit history because you never know, you might be the next borrower. If you have a low credit rating- it indicates that you are more prone to default and won’t be able to repay the loan. (If you already have a bad credit history, click here to know how to increase your credit score.)
- Borrow as much as needed: Borrow only how much is required. It is observed that the borrower tends to borrow more than what his needs are. This leads to debt obligations incase you default on repayments. Hence, it is important to know you repaying capacity and borrow accordingly.
- Terms and Conditions: The terms and conditions are the most important part when you enter in agreement with lender. Borrower should read all the terms and conditions properly and thoroughly in order to avoid any sort of
To conclude, if you are a borrower, make sure you take care of the above points and then go ahead with any one investor.