What to Consider Before Borrowing Money
Estimated reading time: 5 minutes
You can begin borrowing money from the people you know or your bank.
There are always different ways to request financial aid when you need it.
There are many ways and steps to get money fast, and rightfully so, just as long as you make sure you can pay it back.
Have you decided how and where you’ll be borrowing money?
The following are the things you need to consider before borrowing money.
How Much Money Are You Borrowing?
Once you borrow money, there are many things you can do, such as;
- Projects
- Make Expensive purchases
- Pay Off Debt
- Provide For Everyday Needs
- Help Family
When you borrow money, it has to be at the amount you need to cover the expenses required immediately.
Compile, list, or estimate how much money you want to borrow.
Depending on where you plan on borrowing, you might be offered the money you need or an estimate of what you can have.
Stick to the amount you need and can reasonably pay back.
Where Will you be Borrowing the Money From?
Another thing you need to consider is your lender. Who or where will you borrow?
Consider which will bring you the most convenience and the best offers possible, whether from a bank, a credit union, or even a cash advance loan lender.
For this reason, you can choose between your bank, credit unions (if you are a member of one), and lending companies, whether physical or online.
You can even borrow from someone you know if the amount you need isn’t that big.
If you borrow money from someone you know, such as a loved one, make sure you can trust them.
Let them know how you will spend the money and when you will pay them back.
For your bank and credit union, you can always approach them and inquire about available offers they have, whether through email or an appointment.
As for lending companies, confirm if they are a legitimate business unless you already have transacted with them.
If you want to try with a lending company you haven’t heard of before, make sure it has a physical address that you can visit, a safe website, and proof of registration either in their office or on the site.
If you know it’s safe, consider how you can borrow money.
You can either go to their office for a more personalized transaction or when you need extra information.
You can also do it online to have faster and more convenient deals.
How Long Do You Need the Money You’re Borrowing?
Time is essential to why and how you’re borrowing money.
You may have long-term commitments or projects you need to fund or get by for a week, a month, or two until you get a better financial source.
Loans cater to both the long run and the short term.
How long will it take for you to use the money?
If you need it for a long time, you need to get a loan that will have your back for however long you need it.
Although, if you want something fast and temporary, you can opt for short-term loans, though those tend to be more expensive.
How Much is the Interest Rate?
Another thing you might want to look out for is the loan interest.
The interest is the price lenders charge to take out a loan.
In other words, not only should you pay back the money you borrowed, but you also need to pay the interest rate given to you.
The amount varies on the type of loan, the amount borrowed, and the loan duration.
Essentially, you would want to get a deal with a reasonable interest.
If you want a better look at your options, you can look at each loan’s APR or the annual percentage rate because this also includes additional fees you need to pay besides the interest rate.
Consequently, you can also check the loan’s way of calculating the interest, which is simple and compound.
Simple Interest
What is simple interest?
Simple interest is multiplying the principal amount by the annual interest rate, and compound interest is bearing the principal to the sum of one plus the annual interest rate raised to the power of how long the loan will take and then subtracting the principal.
Does your Credit Score and DTI Ratio Pass the Application Requirement?
A crucial factor to consider is how eligible you are to borrow money.
If you were personally borrowing from someone, you know there won’t be a problem.
However, borrowing money from financial institutions requires proof of your creditworthiness.
This is how lenders decide whether or not to give you a loan.
You can check your creditworthiness in two ways: your debt-to-income ratio and credit score.
A debt-to-income ratio calculates your debt payments divided by your monthly income.
The result is the money you have that is meant to pay your debts. The lower the ratio is, the better.
Above all, a good ratio would be 36 percent or less.
A credit score is a number used to determine your creditworthiness.
Financial institutions assess this by looking at your credit history, primarily your debts and if you’ve paid them on time.
The credit score ranges from 300 to 900, with 660 and above considered good to excellent.
To Sum it Up
If you want to borrow money, plan.
You need to think of the amount of money you want to borrow, how long you need it for, where you want to borrow from, the interest rates, and your eligibility to do so.
Therefore, as a result, you must get the best deals to make the most out of borrowing money.
Discussion: Have you ever needed to borrow money, and what process did you go through?
Please share your comments below.
Mr.CBB
