Friday, May 10, 2013, AM | 5 Comments
People find themselves in many financial situations. Sometimes a loan option is the only way out. You can either be smart or not so smart when borrowing money. One important thing to remember is it has to be paid back.
Always make a plan when borrowing and include how much you need, the purpose of the loan, how much you can truly afford to pay back comfortably and how long it will take to pay back.
Here are 4 smart tips on how to borrow money.
Borrow From Friends and Family
One of the cheapest methods of borrowing money is through someone you know. Generally they charge little to no interest and repayment terms is less strict. They may say pay them back when you have it. The only problem with borrowing form someone you know is further trust issues. If anything goes wrong your deal can turn sour quick and damage the personal relationship.
Try to keep it strictly business by treating the loan as a business deal. Put the deal in writing. In fact, you should offer to do so before they do. Be up front about what you need to borrow the money for. Borrow only what you need. You still have to pay the loan back without worries. Just because they have it available does not mean you should pursue the extra.
Some people only feel they should loan money out for emergencies. If you plan on going on vacation with that money and they find out, they could have harsh thoughts about you borrowing money for pleasure. If the loan was for a business, make sure to keep them in the loop about how things are going.
Borrow Money from a Credit Union
Credit Unions have many great offers for taking loans. If you’re not a member, it’s generally not difficult to become a member with one. Most membership levels are based on where you live or where you work. You can start with a small loan or credit line and work your way up to a higher line. You are also able to have loan periods to pay the loan back as opposed to other loan types such as payday loans.
Search for the Best Interest Rates
Never accept the first offer. Shopping around for interest rates is vital. The interest rate will affect your payments and the life of the loan. When you obtain the loan, make sure to pay it on time. Keep your credit rating in good standing. It’s always possible to call and renegotiate your loan interest rate. Also look for things like prepayment penalties before taking the loan.
Pay Your Debt Off Early
You will save yourself a lot of money by paying your debt off early. This reduces the interest owed. You can do this by making multiple payments in a month on your loan. The interest is usually compounded daily so the more you take off the principal the better it will be. You can also send in additional money for your payment and make sure it’s applied to the principle.