What is responsible borrowing? How to borrow responsibly?
Do you want to get your finances straight and get out of debts sooner? If yes, then you will probably want to find out more about responsible borrowing. Financial responsibility means using financial tools like loans, bank account and checks wisely, spend less than you earn, make monthly payments on time. Advantages of responsible borrowing comprise:
- Good or excellent credit score;
- Constant improvement of a bad credit;
- Better loan offers, as a result of a good credit rating;
- Higher chances to have loan applications accepted.
Borrowing responsibly involves requesting a loan amount that is easy to pay back. Just one missed payment can reflect negatively on credit history, so here is what you can do to avoid that:
1. Look for legit lenders
Taking a loan from authorized lending companies will protect you from unlawful practices. Legal lenders are also more likely to help you out in case something occurs and you cannot make a payment on time.
2. Read loan offer fully
Fully understanding the terms and conditions of a loan offer will ensure a well-grounded decision. Is this the lowest rate you can get? Is the loan interest fixed or floating? Are there any prepayment penalties? These are just a few questions you need to find answers before accepting a loan offer.
3. Consider loan term
Short and long term loans have their ups and downs. While a longer loan attracts with smaller installments and the possibility of getting a larger amount of money, a short-term loan offers the chance to get out of debt faster. See which one of the options suits your situation best.
4. Make a budget and stick to it.
Responsible borrowers do not exceed 30% of total monthly income for monthly payments for all loans. Write a budget on paper and use a loan calculator to see what the ideal loan payment plan is for you. Take into consideration possible changes in the finances that might come up while you are paying back the loan and have a plan B for your loan repayment.
5. Contact the lender in case you might miss a payment
Talk to the lender and see if it can offer you a loan restructure plan or delay the due date, the moment you suspect that you might miss a payment. By informing the lender about the difficulties of paying the loan before they occur and make you late on your payments, you are protecting credit rating and avoiding a loan default.