How to Borrow Responsibly

March 22nd, 2021 by
How to borrow responsibly

Photo by Gabby K / Pexels

That ultra-thin, 72-inch television that you have always wanted is on sale, but you don’t have enough saved to buy it. Should you get it? How can you get it?

The best plan would be to save for it rather than to take out a small loan.

Related: Did Your Credit Score Fall? Here’s Why.

Of course, saving up for the TV and paying outright is less expensive and you would outright own it without having to risk receiving a bad credit rating. You’d also advert the risk of not being able to pay back the money, having it repossessed, or losing any collateral that you had to place upfront for the loan.

Visa’s Practical Money Skills imparts some knowledge on borrowing responsibly. 

How Can You Borrow Responsibly?

First, you should make sure you understand what it means, if you borrow the money.

For example, the interest rate, the length of the loan, and the amount of time to pay off the debt. The lender must provide all this information in a language that you can understand.

As the old saying goes, make sure you read and understand all that the agreement states. 

Related: Here are some Myths about 529 College Savings Plans

Also, do not borrow any more than what you can repay, including the interest and length of the loan.

You don’t want to pay on that TV for more than a few months, otherwise, you could be paying three or four times the amount of the original price. This is just on the principal of the loan, not to mention the interest rate and the length of the loan, too.

You should also budget for repayments. You should not spend more than 10% of your income on the repayment of your loans. This 10% should the total of all of your debt repayments, with the exception of your home loan. 

Another responsibility with acquiring a loan is to make sure that you pay the debts on time. If you are unable to do so, tell the creditor as soon as possible so that you can make other arrangements to pay back the loan.

If the debt is in the form of a credit card, it is your responsibility to report if your card has been lost, stolen, or compromised. You should never give out any financial information, including bank accounts, credit cards, or loan information, to anyone over the phone, unless you called the person or you know exactly who you are talking to. 

Before You Borrow Money

It’s always cheaper to repay debt over a shorter period of time.  Ask the lender what the interest rate is and what the terms are for the agreement.

Related: Hard Credit Inquiries: How Many Is Too Many?

As you shop for your loan, check out a few lenders and comparative shop for terms and interest rates. When you are ready to proceed with a lender, make sure you read the fine print as well to ensure you will be able to meet all the obligations of the agreement. 

In today’s world, almost everyone borrows money at some point. By managing your loans and knowing your responsibility in the process, you can easily repay the debt with no problems at all.

 

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Posted in Financial Planning