In an ideal world, we would all like to have enough money for each of our requirements; where there is never a need to visit a lender to fill cash gaps. Sounds too much of a convenience and a happy life. It’s not? However, the reality is not so sweet and most of us have little choice in financial matters. We have a multi-billion dollar credit industry that thrives on the huge gap between consumer credit needs, after all.
With the advent of the FinTech industry, it has become easier than ever to borrow the necessary funds, for example, in a matter of few hours you can make use of the loans of your choice. Many lenders even boast of extending financial assistance instantly (within a minute) too! Service and processing are as simple as possible today.
Although the channels for borrowing have multiplied to reduce the barriers between lenders and borrowers, the basic rules for applying for a loan are generally the same. You should never borrow more than you need; and ensure the affordability of loans at the same time. Here is a quick list to establish 5 absolute rules for choosing a suitable loan so that you will never be enslaved by debt in your life.
1. Borrow according to your ability to repay
Whether you are Christian or not, it is not about believing in faith; It is pragmatic not to borrow beyond your means. Always get a loan after evaluating your ability to repay. Borrowing more than the allowed credit limit or borrowing more than 50 percent of your income hurts your credit score and credit worthiness.
Today, it is not uncommon to borrow despite a low score, as there are always many loan offers available. Regardless of the availability of the loan, you must borrow strictly if you need it.
2. Try to borrow short-term; don’t borrow unnecessarily long-term
While it is always wise to ensure loan affordability or ease of repayment, at the same time you should ensure that you do not extend the duration of your payment simply to keep your installments low. Because, the greater the tenure; the higher the cost of the loan. When obtaining a loan, you should try to save as much as possible on the interest on the loan. In case you have problems with temporary funds, you can start the loan with small installments; and then prepaying or refinancing the loan to save the extra payment on the loan interest amount.
3. Be disciplined in loan repayments.
One of the most common reasons for destroying your credit score is delaying credit bill payments. Many people realize the mistake after declining a loan. Therefore, it is advisable that the earlier you automate loan payments and credit bills, the better for your credit health. Plus, you can deliberately align the same repayment date for multiple accounts, so there is less hassle to manage the repayment date. Always remember: A delay of one day is the same as a delay of one week. Therefore, it is important to pay before the term expires.
4. Try not to borrow for investments or unaccounted for risks
Loans should not be directed at paying volatile risky investments or payments. 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 equity funds. Also, it is important to think critically about the purpose of the loan, as a debt should always be used for important reasons in life.
5. Keep a tab on your credit report
Once you apply for a loan, it is 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 renewed credit invoice for a few months, you need to clear the balance on this card first. I would save enough on the interest component.
Similarly, if you have multiple loans running simultaneously, consider consolidating your debts and reducing your monthly debt burden. Here you may also consider using the advice of an experienced loan broker to use cheaper loan alternatives, such as a secured home loan or a homeowners loan, to reduce your monthly debt repayment burden.
With all of these factors in mind, while 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!
