Here’s How You Can Save Money When Borrowing
We’ve all been there. Not making enough, bills piling up, falling short of cash, and borrowing money with no other way to go! But even loaning money should be planned and budgeted carefully, so that when you talk to a potential lender, you would know if you can repay the amount that you want to borrow at the interest rate that they are offering.
Here’s how you can save money when borrowing money:
Consider Getting a Credit Card
A personal loan will give you the amount you need, and the key with this kind of loan is having a structured repayment. That way, you know ahead of time about your period of debt, and how much you need to pay the lender back each month. But credit cards can substantially undercut, making it one of the cheapest loans that you can get. So it would only make sense that you go for a credit card first.
But before you take a credit card, think about the amount you want, the reason you want it, and your ability to repay it. Credit cards come with a limit and your limit is determined by your credit score.
If you need more money than what the credit card can offer, you might end up with a loan on top of a card, which is not a very wise move.
Choose the Right Loan
Although it’s much better to be debt-free, this might be the right time to get a loan as it’s never been cheaper. Also, there are many lenders to choose from, which means that there would be a price war, which has led to the past couple of years seeing plummeted rates.
But don’t get too excited about the low-interest rates because they can still have hidden costs. All loans and credit cards that are advertised are actually just “representative”, which means that only 51% card application would get a good deal, while the remaining 49% would have to settle with a slightly expensive loan.
The secret to a successful loan is simple, you borrow as little as possible and pay it back as quickly as you can. This will help you avoid any complications that will leave you buried in debt. When you borrow money and choose to repay it over a longer time, your month-on-month burden might decrease, but there would be a massive increase in the interest rate. So be wary of loans that let you pay a little amount for a much longer period of time. Chances are you will be paying a lot more interest than you would have if you settled for a higher repayment amount at a much shorter time.
Calculate Your Loan
There are many loan calculators available online that help you calculate the cost of your loan. The tool helps you compare the rates and payments that you have to make between two lenders and help you see if you can save if you go for one of them.
A loan calculator gives you a clear picture of how much you’d be paying monthly or annually depending on the agreed amount, the total interest, and how much you’d be paying all in all. You can also alter the payment timelines from beginning up to the end of the agreement.
Here are terms to familiarize yourself with when using a loan calculator:
a. Loan Amount or Base Amount. This is the total amount you want to borrow. This excludes the interest and other additional fees; it’s the borrowed amount as it is.
b. Loan Term. This refers to the duration of the agreement. It comprises the beginning of the loan up to the last payment or final due. It may be in the form of weeks, months, or years.
c. Interest Rate. The percentage that will be added to your base loan amount. You should be adamant in asking whether your loan is compound interest or simple interest because it really makes a difference.
d. Compound Interest. This will accumulate until the last payment; the calculation will be done weekly, monthly, or yearly depending on the agreed term.
e. Simple Interest. The percentage added only once on your base amount. Simple interest is not accumulated and will be added only on the base amount once on the whole loan term.
You definitely have to assess and consider several factors when borrowing. Do your research to avoid any financial headaches!
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