Tracing the history of debt is almost an impossible task, given that the practice of borrowing money is almost as old as mankind. However, keeping track of certain timelines in banking practice is much easier. For example, most lenders have always charged interest for their troubles. However, the legitimacy of this act was concretized in the early 1900s.
Many kinds of credit lines are available today for various borrowers and to suit certain financial needs. For example, you can check out forbrukslån.no/låne-penger/ for more information on unsecured same-day loans. However, the focus of this article is ensuring that borrowers make informed decisions.
This is both in terms of getting the right credit lines and fulfilling their obligations as borrowers. You are advised to continue reading as this information is crucial.
Common Borrower’s Mistakes and How to Avoid Them
Loans are supposed to come through for borrowers. This is by allowing them to address specific financial needs. Unfortunately, it turns out that some people end up worse after taking out these credit lines.
There are myriad reasons for this, including very avoidable ones. This is why this part of this article is dedicated to highlighting some of them and how to avoid them:
Not Going Over Terms & Conditions
For starters, some people borrow money without ironing out terms and conditions. This is a huge mistake and should be avoided at all costs. Ensure that you are well aware of the terms and conditions for taking out the credit line. Speaking of terms and conditions, it should focus on several things, including:
- Interest rates – Not just the nominal but effective interest rate
- Loan fees – There may be administrative and other charges that apply. They should all be made clear in the terms and conditions.
- Repayment Schedule – The time frame and sequence for repaying the loan
- Penalties – This is for situations such as late repayment, insufficient repayment, and even early repayment (if applicable)
For the record, terms & conditions should be thoroughly read and understood. This implies that clarifications must be sought if/when there are gray areas. This is crucial because you would be bound by the details in this document, regardless of your knowledge or ignorance of what it entails.
Borrowing Beyond Your Repayment Capacity
Two things must be considered before deciding to take out a loan. The first is your needs and most borrowers do not have a problem with this.
However, problems are usually bound to set in when borrowers fail to take note of the second thing, which is repayment capacity. The rule of thumb here is to avoid the temptation of taking out a loan that you are unable to repay.
This rule is crucial as many people end up in a debt crisis as a result of violating it. To provide a clearer perspective, you can click here to read a troubling report by the UNCTAD (United Nations Conference on Trade and Development) on this subject.
The whole point being stressed here is the need to evaluate and make decisions based on your repayment capacity before borrowing. This calls for doing the following:
- Assessing your present financial situation
- Budget creation
- Consideration of existing debts
- Consideration of the impact of possible future changes
- Seeking professional advice (if necessary)
- Use of specialized calculators
All of these are very crucial in making an informed decision in this regard. This is also why some of them form the basis for other points subsequently discussed.
Not Shopping Around
Unfortunately, this is very high on the list of common mistakes by borrowers. It is quite understandable how some people give in to this error because of their timely need for money.
The problem is that being in dire and quick need of money puts enormous pressure on people. Unfortunately, any option is usually fine for a person under enormous pressure.
For this reason, try as much as you can to avoid being in dire and quick need of money. This calls for proper planning. This is so that you will be in the right frame of mind to make the right decisions, as it concerns agreeing to loan deals or otherwise. However, it is worth mentioning that even the best planners can sometimes be caught off guard by the turn of events.
Having made this clear, you should shop around for borrower-friendly loan deals by creditors. Doing this is crucial because creditors do not operate uniformly. Their varying internal policies largely determine the offers that they make available to prospective and established borrowers.
As a result, one creditor can be very reasonable while another is very unreasonable with its offers. For this reason, do not settle for just the first option that comes along. Take the time to assess several options before making your final decision.
The daunting nature of assessing multiple creditors is very understandable. However, the good news is that it does not have to be so. This is thanks to the possibility of using the services of loan agents.
These agents get several offers (and possibly the very best) from several creditors and offer them to you in a timely manner. Besides the fact that they work promptly, the number of offers that they get is another astonishing thing about many of them. Experience has shown how they research and provide no fewer than 20 offers.
Furthermore, there are loan package comparison platforms that can be used for this purpose. However, the best option still remains using the services of a capable loan agent.
Bad Communication with Lenders
The goal from the onset should be seamlessly fulfilling all the stipulated terms and conditions as a borrower. However, the truth is that the turn of events can alter these plans.
Timely and proper communication with one’s lender is important during such moments. For example, if you realize that repayment based on the earlier agreed plan is no longer feasible, you should consult with your lender.
There just may be further options to consider. This could be refinancing, for instance.
Wrong Use of Borrowed Funds
Some schools of thought consider the practice of borrowing as a bad financial practice. Well, this is a highly subjective stance as some very financially intelligent people have been known to borrow (wisely).
Against this backdrop, it should be known that the wisdom or folly behind borrowing is largely down to the purpose. This is where some people make a huge mistake by borrowing money for irrelevancies.
So, you need to seriously ask yourself if your reason is valid enough. Do not borrow if it isn’t.
Not Minding Your Credit Score
You need to have the right answer to the question of “do I need to borrow money?”. The next question to ask if the answer to the last question is “yes” is “how do I get the best loan offer?”.
The need to get the best loan offer is why you need to take care of your credit score as it determines how creditworthy you would be perceived. This should inform how you use credit cards and go about your financial life.
By and large, people with low credit scores may be denied when they apply for credit lines. They would most likely be offered high-interest loans if they eventually get offers. So, take care to improve your credit score to stand a good chance of borrowing and getting the best loan offers.
Conclusion
The act of borrowing money is almost as ancient as mankind itself, and the practice would not stop. Furthermore, the practice is not a bad one as long as people borrow for the right reasons and avoid common mistakes associated with borrowers. This is why the details shared here should be taken seriously going forward.