How to Borrow

Borrowing money sometimes becomes a necessity. If you need to buy a house, buy a car, or even pay your grocery bills or other expenses and you don’t have the cash, borrowing money may be your only option. Before you begin borrowing money, however, read on for the top 10 tops about borrowing money wisely.

1. A good credit score can help you borrow money reasonably: Your credit score is a three digit number that lenders use to determine whether you are credit worthy. You can build a good credit score by using credit wisely: not borrowing too much money and always paying back your debts on time. The better your credit, the more lenders will be willing to lend you money for a reasonable fee.
2. Borrowing money can sometimes be a good thing: While some believe that debt is universally bad, that isn’t true. If you borrow money to buy a home and the home goes up in value, then you have essentially leveraged the debt to increase your net worth. Likewise, if you borrow money to start a business or go to school, that can be considered good debt since you will likely increase your income through your borrowing.
3. There are several different ways to borrow money: Most people borrow money on credit cards, and take on mortgage loans and school loans. You can also borrow money through a personal loan- which is a form of unsecured debt in which you apply at the bank or with a lender and don’t pledge any assets to back up the debt. A personal loan can sometimes be a better option if you need to borrow money than credit cards, since credit card debt may have a higher interest rate.
   
4. Always budget when you borrow money: When you borrow money, you will need to be able to ensure you can make the monthly payments. Failure to do so could result in your creditors suing you or- in the case of secured debt such as a car loan or a mortgage- taking back the house or the car or other collateral. Thus, understand what your monthly payment will be on any loan you take and make sure you can afford it before you borrow the cash.
5. Understand your interest rate: The interest rate is the amount you are charged to borrow the money. It is normally, but not always, stated in terms of an annual interest rate. Make sure you understand exactly what your interest rate is and how you are being charged the interest. Some companies, such as payday loans for example, charge an extremely high interest rate- upwards of 600 percent in many cases- while personal loans, mortgages and car loans tend to have much lower interest rates- usually under 10 percent annually if your credit is good.
6. Understand the terms of your loan: There are usually many terms associated with your loan in addition to the interest rate. For example, you may not be able to prepay your loan without paying a prepayment penalty. You may also incur late charges if you don’t pay by a certain date. You need to understand those terms before you sign on for a loan.
7. Think carefully about how much you are borrowing: The more you borrow, the more you will ultimately end up paying in interest and the more you will have to pay on a monthly basis to pay back the loan. Think carefully about how much you are borrowing and don’t borrow more than you need or more than you can afford.
   
8. Understand the application process: When you apply for a loan, you usually need to supply your credit score. You may also need to provide additional information such as proof of your income. Understand exactly what is needed from you to get the loan. You will also want to know how long it will take you to get the cash from the loan, especially if you need the money immediately.
9. Consider the repayment period: This is the amount of time you have in which to pay off the debt. The shorter the repayment period, the less you will ultimately end up paying in interest but the more you will have to pay on a monthly basis. If you can afford slightly higher payments, you may want to opt for a shorter repayment period on the loan if it is an option, in order to save money in the long run.
10. Make a plan to pay off debt: You need to understand before you borrow the debt exactly how to pay it off and how long it is going take you to do so. You can thus ensure that taking on the debt won’t interfere with any of your other financial goals.