Being a Smart Borrower: 10 essential tips
If you want to learn how to make smart decisions with your loans, read on to learn how to be a smart borrower!
Find out how to be a smart borrower!
Are you looking for ways to ensure you’re being a smart borrower? With the ever-changing landscape of higher education, housing, and more, understanding what it takes to borrow smartly is essential.
Therefore, to help alleviate some confusion and get on track toward becoming a smarter borrower, we’ve compiled 10 tips that can help guide you through the borrowing process.
Moreover, from properly managing your loan payments to understanding mistakes to avoid that may prevent damage down the line!
So, keep reading this blog because we will outline how you can be an informed and responsible borrower, no matter your age or financial background. Ready? Let’s dive in!
What does it mean to be a smart borrower?
Smart Borrowing is designed to help you learn about all of your available borrowing options.
Moreover, there are many resources available to help with budgeting and money management.
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See how to be a smart borrower: 10 tips!
Now that you understand the definition of being a smart borrower, we can help you with some tips.
So, if you want to find better ways to borrow money, check out our list below with 10 tips!
Do your research
To acquire the best loan conditions, you should compare several lenders. Evaluate each deal by contrasting its APR, terms, and features.
Moreover, you can do your research to check if your lender is trustable. Therefore, you’ll be able to stay away from scams.
Organize your documents
You will collect a mountain of forms as you go forward with your application. Whether it’s loan agreements or course notes, keep everything in one spot.
Therefore, you can create a folder (whether actual or virtual) and label its contents if you want to retrieve anything from storage swiftly.
Moreover, we recommend that you also keep a digital copy of every physical document you have.
However, it is important to have the physical document in case the digital is lost.
Check how much you can borrow
Lifestyle, financial goals, and income all play a role in determining how much of a loan you may be able to afford.
Moreover, although there is no universal guideline, many loan providers utilize a maximum debt-to-income ratio of 36%.
Therefore, all of your monthly loan payments will be weighed against your regular cash flow.
In addition, you’ll need to calculate how your current finances are and how much you plan to earn in the future.
With this, you’ll be able to understand more if you’ll be able to make all your loan repayments. Also, you’ll know if you can pay for the interest and fees related to the loan.
Check your credit score
If your credit isn’t good, getting a loan could be next to impossible.
Moreover, your credit score is based mostly on your payment history and credit utilization rate (65%).
Also, the easiest way to keep your credit score high is to make all of your payments on time, never skip a payment, and keep your utilization below 10%.
In addition, keep in mind that just because you have a great credit score doesn’t mean you can take on more debt.
Therefore, even with perfect credit, it is possible to survive just from paycheck to paycheck. So, people can have a high credit score and live on the limit of their finances, spending almost every penny each month.
On the other hand, it’s possible to have a low credit score owing to late payments while yet having a significant savings cushion and sufficient regular income to pay for loan installments.
Make your payments on time
After you begin repaying your loans, you must do it promptly. This is because Late fines are a pain to pay, and a pattern of them can have a negative impact on your credit score.
Moreover, you can keep on top of your monthly bill paying or, better yet, set up automated payments.
Also, this type of payment can result in interest savings. Moreover, if you have several scheduled withdrawals, over-drafting your bank account might be an expensive oversight.
Before you take out a loan, you’ll need to be a smart borrower by checking what other people wrote regarding the lender or bank.
This way, you’ll be able to understand more about other people’s experiences with that lender. Therefore, you’ll have a better idea if this loan is for you!
Find a co-signer
Depending on your credit history, you may need a co-signer in order to get a personal loan at a fair interest rate.
Moreover, if you are having trouble finding a co-signer or the potential lenders you are looking at does not allow co-signers, you may want to consider applying for a secured personal loan.
Reconsider secured loans
If you put up an asset like a car, a house, or funds in a savings account or CD as collateral for a loan, you may qualify for a lower interest rate and lower monthly payment.
However, in case of default, the lender might seize the collateral to recoup their losses. Therefore, you may want to reconsider taking out a secured loan.
Some loan providers can let you become prequalified without running your credit.
Therefore, before applying, you may be able to receive an idea of what your loan rates and terms may be to assist you in determining if proceeding with the lender is worthwhile.
Moreover, if a lender doesn’t provide prequalification, they will likely examine your credit if you apply for a loan. And this can be a hard credit check that can harm your score.
Read the terms
One very important thing you need to do before taking out a loan is to read the terms. So, after you have done your research and chosen your lender, you’ll need to read the agreement throughout.
This way, you’ll be able to understand the terms and conditions that will apply to your repayments and other loan features.
How do banks use your credit score?
You probably already know that credit scores have a huge impact on people’s finances. But how exactly a bank use this three-digit number?
To keep learning more about finances and improving your knowledge on this important field, check the post we’ve made about credit scores for you.
About the author / Victória Lourenço
Reviewed by / Aline Barbosa
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