What to Look for when Borrowing Money

What to Look for when Borrowing Money

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Sometimes you may fall short of funds when investing in an asset such as a car or a house or kickstarting your own start up. You’re probably wondering when is the right time to turn your dreams into concrete realities,? Secondly, how do I come up with the required finances? The answer to the first part is, the right time is now because what is cheaper today will be more expensive and out of reach tomorrow. You can arrange money by financing, or more simply borrowing money from an established financial institution. It is highly advisable to avoid borrowing from private lenders. The reason is that it is very likely that there is a catch and you may find yourself in a host of unpleasant situations such as falling prey to loan sharks.

The Loan

Getting a loan can be stressful especially if it’s your first time. Primarily because you’re thinking about stepping into the world of finance which can be a little overwhelming for a variety of reasons. For instance, you do not have any idea what financial jargon such as principal amounts, interest rates and offset accounts means. Moreover, how do they impact the two parties. Especially the person repaying the loan. You can try and make yourself more acquainted with the jargon with online research. You can follow experts in the field on social media as well.

Type of Loan

There are some great features that are part of most loan deals. A word of caution, the features often depend on the size and purpose of the loan. For instance if you are getting a home loan or a mortgage then you should look for an institution that offers you an offset account and the provision to make extra repayments. The primary benefit of an offset account is that you’re only charged interest on the remaining difference. For instance, if you bought a house that was worth $300000 and your offset account holds $25000. You will be charged interest only for $275000. Which reduces the amount you pay in the long run.

Loan Period

Another important feature you should look at is the loan period. The loan period is how long it will take you to repay the entire loan. It should not be too long or too short because in both cases the interest rates charged will be too high. Secondly, you will also need to take into consideration the expected amount of each instalment. This is important because you need to make sure your other expenditures are also covered, you can’t invest and starve till your repayment is complete.

Repayments

Ideally, your loan terms should allow you to make additional repayments. This can knock off a significant amount of time from your loan period. Hence helping you make great savings in the amount of interest you pay. An important feature of any loan is the interest rate charged. Oftentimes people find that they end up paying much more than they initially signed up to pay. Because they didn’t understand interest rates correctly. When borrowing money, you can equip yourself with as much information as possible for informed decision making. And do some simple calculations to determine the amount of interest you will be paying in the long run. This way you will be borrowing money but you’ll manage it smartly.

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