Important Things to Remember When Borrowing Money

Whether you’re setting up a small business, remodeling your kitchen set, paying some emergency bills, or for hospitalization, you’ll need to borrow money from time to time. There are a lot of financial institutions that offer loans such as banks and credit unions. There are indeed many resources to choose from, but taking out a loan is not as simple as it seems. It’s not only a matter of principal, time and interest. Whatever the kind of loan is and for whatever amount, you should know what you’re getting yourself into before you sign any deal. Here are some things to consider apart from the principal-rate-time triangle we all learned in school.

Shop for the best interest rate possible

This goes without saying, but a lot of people think they can pay the amount in full on time so they couldn’t care less about the interest rate. While this is a good behavior, not all loans can be paid in full all the time. Accidents happen and emergency expenses sometimes prop up abruptly, leaving us no choice but to delay payments and let interest rates be charged on us. It’s easy to avoid this, but it takes time and dedication. A prudent borrower does his homework diligently. He asks several banks and brokers for quotes. He also doesn’t settle for the lowest rate right away. Instead, he makes sure he’s comparing apples to apples, he must be certain that his loan reflects the same time period and amount he desires. Most importantly, he accounts for all fees he will be incurring should he avail of the financial institution or broker’s services. This is how you should scout for a loan. Attention to detail is a must.

Use your equity

Your home equity can be valuable when it comes to taking out a loan because you can actually take equity out by getting a check from the bank equal to some or all of your home equity. The process to do this quicker than most loan options, plus the amount is variable. Or, you can open a line of credit against your home equity, which in return uses your home as security for the loan. Because this is considered a secured loan, you are equally secured of a better interest rate than that of a credit card. Using your equity gives you a lot of financial advantages, which is why this practice is so popular in the US. However, there is one downside and a huge one at that. Should you default, you will lose your home. So before you take out a home equity loan, make sure you have the resources to pay it back on time.

Stay away from payday loans

Unless you’re extremely desperate and have nowhere else to run to, do not under any circumstance take out a payday loan. A payday loan is essentially a type of loan that enables you to pay upon receiving your paycheck. It may sound like a good idea, but what a lot of people fail to realize is that companies that offer payday loans with no credit check and no collateral makes their money by charging outrageously high rates, sometimes going up to 300%, if the customer defaults. It’s not easy to pay on time, and when this happens with your payday loan, you’re in for a lot of financial trouble. GP