We outline the 3 key things to watch out for to avoid mistakes when borrowing money, and the impact on your personal finances.
Most of us will need to borrow money at some point in our lives. It could be to buy a car, to attend university, to buy a home or make another large purchase. Most cities are home to dozens of different lenders who can help you reach your financial goals.
Avoid mistakes when borrowing money
Unfortunately, borrowing money isn’t always easy or the right move. There are several mistakes you can make that may get you into a lot of financial trouble. Without being aware of these risks, you could find yourself struggling to pay off your debt.
With that in mind, here are the top 3 mistakes you should avoid making when borrowing money from a lender.
1. Not Educating Yourself on the Options
The first mistake many borrowers make is not educating themselves on the options available to them. Many will simply go for the first loan they can get, but this isn’t always the right choice. You should learn about different options, such as how car title loans work, the benefits of a secured loan, and the costs and fees associated with all of the options.
In addition to knowing the different types of borrowing options, be sure to shop around for the right provider. Not all lenders are created equally in terms of the deals and interests rate that they give out. If you simply go with the first one you reach out to, you may be leaving a better deal on the table from another lender.
Doing this research and legwork can take more time, but it is generally worth it for a better deal. Also, be sure to work with a lender that is trustworthy, has a good reputation and that you feel comfortable working with. Be sure to always be on the lookout for signs of predatory lending, and take steps to protect yourself and your money.
2. Borrowing Too Much
The amount that a person borrows can also be problematic at times. Many people will be able to qualify for loans that are larger than what they need. While some can avoid temptation, a large number of people will end up taking out an excessive loan. A common example of this is someone getting a car that is out of their price range, simply because a lender approved the large loan.
If you take on a loan that is too big, the monthly payments can often be difficult to pay back and can severely hinder your ability to save money. To correctly assess how much money you can afford to borrow, you need to take a good look at your finances. Consider your income and your monthly expenses in a realistic way. Be aware of the signs that you already have too much debt, and avoid taking on more, if you can.
3. Solely Focusing on the Monthly Payment
When many people think about a loan, their first thought is to get one with a monthly payment they can afford. While an affordable monthly payment is important, it’s not the only thing you should look at when evaluating a loan. This is often because a lender can lower the monthly payment by stretching the loan over a longer period of time.
In addition to the monthly payment, you should also be familiar with the interest rate, the term and any potential hidden fees. All of these together will be able to show you whether the loan is a good choice or not. No matter how big or small a loan you are getting, it is a good idea to read and understand all of the terms
Always Make Sure You are Borrowing Money Intelligently
Whether it is for a new car, or another large purchase, borrowing money is common. However, it is important to be aware of the mistakes and avoid them. If you can educate yourself on the options, borrow the right amount and focus on more than the monthly repayment, you can be sure you are borrowing intelligently the next time you need money.