Let’s all face it; we need at some point in our life to accomplish something. Even the wealthiest men and women on earth have loans. We live in a real world where we have needs. However, the reality is harsh; we have little income that will not achieve our goals in life. So, it makes sense taking a loan to accomplish a thing or two in life.
Unlike in the past when banks were the main lenders, technology has greatly changed and once can easily get a loan from a myriad of apps on their phones. It is quite easy to get a loan nowadays with minimal requirements. However, this has also created a problem with people sometimes taking loans they don’t necessarily require. Some online lenders like OppLoans offer quick and efficient financing even on bad credit. Read more on OppLoans personal loan reviews.
In this post, we are going to discuss the golden rules you must follow before taking out a loan.
1. Don’t borrow more than you can repay
We’ve always been told not to live beyond our means. This is indeed true when it comes to borrowing. You only need to take a loan that you can easily repay. All your loans put together should not pass more than 50 percent of your monthly income. While taking loans has become as simple as ABC make sure you don’t just take the loan because it is available. Your loan-income ratio must be within acceptable limits to avoid living a debt filled lifestyle.
2. Keep the repayment period as short as possible
When you take a loan, there are high chances you will be tempted by the long and flexible repayment period with lower interest rates. However, this might not be good for you in the long-term. If you’re taking a loan that is within your financial limits, then keep the repayment period as short as possible.
A good example is a home loan where you’re sometimes given up to 30 years to pay. This will usually appeal to young people in their 25-35 years. However, longer tenures usually lead to higher compound interest rates. You need to have the due date of the loan on the back of your mind when applying for the loan. If you’re not planning to meet the date, then consider a different loan.
3. Regular and timely payment
Discipline and borrowing are two things that must go hand-in-hand if you’re going to be successful in life. Whether taking a small $2, 500 loans or a long-term house loan, it makes sense to make repayments on time. Missed or late payments are some of the leading factors for poor credit scores. Even in the case of emergencies, your loan should be a priority. This is why it is recommended that you have an emergency fund set somewhere when paying loans. You don’t want to take another loan to solve an emergency.
4. Don’t borrow to invest in bonds and fixed deposits
This is another basic but golden rule of borrowing. The interest rates offered when people save money on fixed accounts or bonds will not match the interest rates of the loan. You will be making a loss from the loan despite saving the money borrowed. Only borrow for cost-effective investments that will give you higher returns.
The same applies to taking a loan for discretionary spending. Expenditures like travel are better serviced by savings and not loans. This is why people save to travel around the world and not take loans to travel.
5. Shop for better rates
Financial institutions are also in competition for customers looking to take loans. There is always a firm or a bank with a better rate. Don’t be fooled with the first best offer you get. Shop around and read all the terms correctly to ensure you get the best deal possible. You also need to know what happens when you miss a payment. Are there possible penalties? If so, how much and how will this impact your loan.
Taking a loan is something that must be given great consideration than most people imagine. If you have a family, then it is best to keep them on the loop on the loan you’ve taken. In case anything happens to you, you don’t want to have your family being kicked out of their home. Your spouse needs to be aware of the loan and the reasons for taking it. Even better, take an insurance cover when taking big loans to keep your family members on the safe side should anything happen to you.