Home » 2017 » March » 01

Be a Responsible Borrower

spendingBorrowing responsibly means borrowing only what you need. Although it’s tempting to add a few hundred to the principal, remember that extra amount will end up costing you a great deal more at the end of the loan period. Adding more interest to the principal can definitely keep you chained to the loan and seem like you will never see that final payment.

Remember when you take out a loan either for personal or business expense here are 6 tips for being a responsible borrower.

  1. Start with a plan. Being a responsible borrower often begins before you ever go to a financial institution for a loan.
  2. Use a loan calculator. There are plenty of free loan calculators out there. They can help you see how much the loan will cost you overall as well as give you an estimate of monthly, weekly, or daily payments.
  3. Know your debt-to-income ratio. This is your annual income to the debt you hold.
  4. Give yourself a financial cushion. Giving yourself some wiggle room will help when an unexpected expense comes along.  Aim for at least 3 times of your monthly expenses, keeping in mind, this amount may not give you the required comfort.
  5. Borrow only when you need to. This is probably the most important tip. Only borrow what you need to satisfy the expense. You’ll be happy when you receive the paid in full note!
  6. Make your payments on time. Last, but not least, be sure to pay your loan payments on time. Depending on the type of loan you have, the length of time your payment is late determines the late fee.  Some lending companies may even increase your APR as a penalty for making even a single late payment!

If you have to borrow, keeping these six tips in mind will help you manage the added debt.