A 2019 survey on Canadian spending found that 73.2% of Canadians have some type of outstanding debt. While going into debt can be beneficial when used for things like a mortgage or an education, it can also be easy for your debt to spiral out of control. To retain control over your finances, it is essential that you learn how to be responsible when borrowing money.
Do you want to learn more about money management and how you can protect yourself when you take out personal loans?
Keep reading this guide for the top responsible borrowing practices you should follow when you take out any type of loan.
When you are looking for a loan, you need to shop around so you can understand each of your options. There are many different companies that offer no credit check loans, but each will have different terms and conditions.
Carefully researching your loan options will ensure that you get the best deal possible when you are borrowing money!
Different lenders also offer different rates for their loans. If you look at the loans available from different lenders, you can get the lowest interest rate for your loan. This can save you hundreds or even thousands of dollars over the course of your loan.
Understand the Total Amount You Are Borrowing
Next, you need to understand exactly how much money you are borrowing when you get a personal loan. While you may take out a loan for $500, you may end up owing much more than this if you have a loan with a high-interest rate.
For example, it is often better to choose a loan that has a shorter repayment period, even if your other options have a slightly lower annual percentage rate. This is because you will likely save more money by paying off your loan more quickly than you would on your interest payments each month.
Understanding the exact amount of money you are borrowing over time will ensure that you don’t get stuck repaying loans that have extremely high rates.
Avoid Variable Interest Rates
You should also avoid taking out a loan that has a variable interest rate. This is because your interest rate can change over time, based on the index rate. When your interest rate varies, your loan payments each month can vary.
This makes it much more difficult for you to budget for your loan, as you will pay different amounts each month!
Plus, your interest rate with a variable loan may increase over time, which will increase the overall amount that you owe for your personal loan.
Never Miss a Payment
Missing a payment on your loans or making late payments is another significant mistake that many people make when they take out a loan.
When you miss a monthly payment or don’t pay the minimum fee each month, you will often be charged an additional fee. This can also affect your credit score, which may make it more difficult to get a loan in the future.
If you take out a loan, it is best to set up an automatic payment schedule. This way, you will never miss a payment.
Don’t Borrow Too Much
One of the biggest mistakes that people make when borrowing money is borrowing too much. While a lender may be willing to offer you a lot of money for your loan, you should never borrow more money than you are able to repay.
As was mentioned before, you need to consider both the length of the loan and the interest rate when you think about how much money you can afford to borrow.
If you pay off a loan for too long, you may be paying more than double the original price of your purchase. It is best to keep your borrowing to a minimum and only take out a loan when it is absolutely necessary!
Read the Fine Print
Before you take out a loan, you need to read the fine print! This way, there will be no unpleasant surprises from your lender down the road.
For example, some lenders may charge you several different fees. This includes fees for late payments, fees for paying off your loan too early, and more. Reading the fine print will help you understand how much money you will pay each month on your loan and will ensure that you find the best loan options.
Don’t Make Impulse Decisions
Finally, you should avoid making impulse decisions when it comes to borrowing money. While you may want to buy a new car or a new TV as soon as you can, taking out a loan may not be the best option.
This is because you will have to pay more in the long run due to the interest rate on your loan.
Instead, you should try to save up for these large purchases beforehand! This way, you can pay for them in cash and can save money on your purchases. If you are unable to afford these things, you can also ask the sales staff if they have payment plans or other financing options.
Need Help Borrowing Money Responsibly?
Borrowing money can seem scary, especially when you are trying to avoid debt. However, following each of these tips can help you borrow money responsibly to avoid unnecessary financial issues.
If you need help borrowing money, Kingcash can help! We offer fast loans in Canada with no credit checks and can offer same-day approval for online loans.
Contact us today to apply for our personal loans and for more personal finance tips to help you borrow money responsibly.