Everyone has a moment in their life when there is less money available than you need at that moment. You are faced with a major purchase or you may have spent a little more money than originally intended and you are temporarily (too) short of cash. Then borrowing money is a great option, provided you carefully consider a number of things. What should you pay attention to and what are the pitfalls when borrowing money?
Borrowing money, costs money
We cannot say it often enough, but borrowing money simply costs money. Companies that provide you with a loan do so to ultimately earn something from it themselves. You borrow an amount that must be repaid with an additional amount of interest on top. Keep this in mind and make sure you can pay that interest too. It may sound like a simple job, but many people have run into problems because of this.
Be critical of any offer. A loan is often offered when purchasing expensive items, such as a car or electronics. In many cases, however, it is unnecessarily expensive and therefore not recommended. Buying on installment or using a credit card seems attractive, but these often turn out to be the most expensive forms of borrowing. A waste of money, right?
Do you still have some savings?
Do you have a savings account with a nice balance on it? Then use that money for your purchase and gradually replenish it. You are, in fact, borrowing from yourself. Nowadays you hardly get any interest on your savings, while a loan does cost you interest.
Do not be fooled!
Don't be fooled by actions, which are often temporary. A very low interest rate on a loan is often a stunt for several months. If there is a longer term of the loan, be well informed about the ultimate costs. You will not be the first to think you are cheap and still have to pay a lot afterwards.
Compare various providers with each other. One party charges a higher interest than the other. Taking out your loan with an expensive party is a shame, because you could have kept that money in your pocket yourself much better.
Never borrow too much. After all, you have to pay it all back in the end. Always keep your wits about you!