There are quite a few reasons as to why people apply for loans. Such purposes may include starting or growing a business, to finish off your education, or for various personal reasons. Most people take haste into taking on loans without doing their research, and this costs them massive repayments later.
Besides the obvious golden rule of finding a lender that will suit you best, below are some of the other fundamental rules that you should consider.
- Borrow Only What You Need
We always hear of people saying that you should live within your means, and this does apply when applying for a loan. It might be tempting to borrow extra, considering most lenders will most definitely give you this option, but you should not. Remember, the more you borrow, the more you pay.
- Borrow Only What You Can Repay
Besides borrowing what you need, you should most importantly borrow what you can repay. It is quite unfortunate that after the exhaustion of your tenure period, you are unable to pay back your debt. Do not borrow above and beyond your means as this could destroy your credit history with other lenders, and even worse, your assets may be repossessed to sort out your debt.
- Keep Tenure As Short As Possible
Tenure is the period or term in which lenders give you to clear out your debt. Loans are handed out on condition that the original amount plus an interest amount are repaid. These payments are meant to be made before the tenure period and are protected by law. It is true that the longer the period of repayment, the more the interest, hence to reduce this, stick to a shorter period for your loan that you can pay off faster.
- Do Not Borrow Money For Huge Investment
As mentioned above, one of the reasons people take loans is to start or grow a business, which in itself is an investment. But caution should be taken when this business will take in a lot of cash to start up. Alternatively, one should consider looking for investors as opposed to taking out a loan.
- Maintain A Consistent Payout Schedule
You should consider creating a schedule when you get to make regular payments. What this does is create a spaced out and easily manageable plan. It also reduces financial strain in the long run.
- Do Not Borrow Cash To Splurge
You should never borrow money under whatever circumstances to either go on a shopping spree for luxury or take a holiday. This would only land you in trouble. You should only borrow money to use on things that guarantee you returns that can help you repay your debt.
- Have Security
If you lose your job before finishing your repayments, you should have a plan B – PlanB here being security. Options available to be used as security are assets such as houses, title deeds or cars, among others.You may also use a trusted friend or family member as security who is able to help you pay out the debt.