Undoubtedly, various loans, leasing and lines of credit can make our lives much easier. It is unlikely that someone will want to save for 40 years in order to finally buy their first home by the age of 60 or 70! And repairs, as a rule, are needed today, and not in two or three years. And if your car or washing machine breaks down, they need to be repaired right away! Therefore, there are situations when loans can become that magic wand that helps to improve the quality of life or solve unexpected problems. The main thing is to borrow wisely!
The best thing is to borrow
If you have a savings account in which you save money, for example, for a trip or a new car, then in a crisis you can easily borrow from yourself provided that you have a clear plan on how to return this money in one payment or by splitting the amount over several months. In addition, it would be fair if you would reward yourself and pay yourself an additional 5-10% for using the loan. Thus you will save on the interest you would have to pay by borrowing money elsewhere and also earn money!
Don’t overpay interest!
At first glance, it may seem that $5 in interest for a loan of $50 is a small amount. However, to understand the real cost of a loan, you need to look at the annual interest rate (APR). This is a standardized way of calculating the cost of credit, as it includes all costs of the loan – the price of the goods, the first installment, the commission fee that is paid at the time of the loan, as well as interest and other payments that the consumer has to pay during the time of using the loan.
It is more profitable to borrow for a shorter period
The total amount of debt will be less if the total repayment period is shorter! If you need a fast loan to pay for medical services, buy a wedding gift, or repair a car, we can offer a solution: use short-term payday loans. Such loans are the easiest to access but they are only suitable for consumers who need a small amount ($100-$1,000) for 1-30 days. Since payday loans are short-term, borrower requirements are relaxed. There is no paperwork, guarantors or collateral involved. For example, to get accepted for online payday loans Ohio, you only need to provide some kind of identity verification and be of legal age. Payday lenders also work with consumers who have a poor credit score or no credit at all. Moreover, this is an easy way to increase your credit score. You can apply for a payday loan via the Internet. If accepted, you can expect to have the funds in your personal bank account as soon as the same day.
Assess your ability to repay the loan – this is not an empty phrase!
Often, when we borrow money, we want to believe that in the future it will be easier to return it, because, perhaps, incomes will grow, and we will finally learn how to live more economically! I really want to believe that this is exactly what will happen, but in this case, it is better not to rely on hopes but to proceed from real incomes and expenses. According to the experts of the Bureau of Consumer Protection, the total amount of debt should not exceed 30-40% of the total income. In addition, it is important to resist the temptation to borrow more to pay off existing debts. Initially, the idea of taking out another loan to pay off your existing debt may seem like a good idea and may even help you out for a while, but usually it creates much more serious problems for you in the long run.
It is safer to borrow from your bank
Why? Because the bank carefully evaluates the solvency of each client. The fact that the bank does not lend as much as we would like at the first moment may cause some dissatisfaction, but after a month, when it comes time to pay the loan, you will understand how good it is that the amount was calculated based on your real capabilities. In addition, now banks have become much more flexible, offering the opportunity to apply for a personal loan in a mobile application in just five minutes.
Beware of traps!
Be especially wary of interest-free loan offers that are heavily advertised on the eve of holidays, when you really want to afford more and treat yourself to something special! As a rule, these loans are interest-free only if they are repaid within a certain period. If this fails and the loan is extended, large interest payments must be reckoned with.
Form your own emergency fund
If possible, be sure to insure your home, health, and car. But unfortunately, is impossible to foresee absolutely everything. In addition, there are things that simply wear out and from time to time you have to buy a new washing machine, dishwasher, pump…
Therefore, we recommend that you set aside $5-50 every month in your own savings fund – thus you can create an excellent emergency fund for unforeseen situations. It is safer to save money in a separate savings account, although a money box in a home safe may well be suitable for this purpose.