7 Tips to Keep in Mind When Taking a Loan
Asking for credit everywhere may sound tempting, especially if we are starting our financial life and want to have a better lifestyle, or at least appear to have one.
So, to save you some headaches here are 7 recommendations to keep in mind when taking out a loan.
(1) When taking out a loan you will have to pay
Part of the little financial education available has resulted in the fact that we do not understand that whoever signs a credit contract assumes payment obligations at that moment.
A credit card, for example, is not an extension of your salary. It is a financial tool to finance the purchase of goods and services that benefit you, such as a computer or the weekly supermarket.
(2) Don’t sign a contract without reading
If you want to avoid overpaying for a credit, what you should do is read and understand the credit contract before signing it. There is nothing wrong with asking if you do not understand the meaning of any legal or financial term.
Avoid the small print, this will prevent you from being charged a lot of interest for actions that you may not have done with your card, such as a minimum monthly purchase. So better express yourself before opting a credit that will lead you to your financial ruin.
(3) Evaluate the credit term
Believe it or not, the time for which you ask for a credit can affect the money you pay. A short term credit normally implies higher payments and a long term credit implies smaller payments, but for a longer period of time.
The same happens with credit cards and annuities, which is an amount of money that you are going to pay for having your credit card for a year. Check if this is paid monthly throughout the year, or you must pay it in a single installment and when.
(4) Compare credits
In the financial system, there are many financial institutions that offer different types of credits, for different objectives.
If you need to start a big business, you will probably have to go to a different financial institution than the one you go to if you ask for a credit card. And even among credit cards there are different product features.
Such as lines of credit, different interest rates and fees. Comparing can help you better understand your needs. Don’t just choose the one that gives you the most credit.
(5) Carefully check the interest rate
In particular, check the Total Annual Cost (CAT) that the different institutions that grant credit.
There are a few that really explain it to you. In a few words, it is a cost that you will have to pay because they lend you money.
(6) Do not incur in default or delinquency
Although this could be a no-brainer, it never hurts to reinforce this good financial habit that will save you many sleepless nights. Because believe it or not, even if you miss a month’s payment on your credit card, this can have negative consequences for you.
And this not only applies to the interest that will increase the total balance of your debt. But you will also see your credit history affected, because every month financial institutions report your behavior to credit bureaus, whether positive or negative.
So, never stop paying your credit card, even if it is the minimum. This way, you can continue to be a worthy subject to hire a credit in the future.
(7) Check your account statements when you take out a credit card
The moment of truth arrives for all of us! When the payment date approaches, you can’t see the light at the end of the tunnel. But there is a financial tool that all banks and financial institutions give you to make the best decision at the time of payment – Your account statement.
Verify that all payments have been accounted for correctly and that no charges are being made that do not correspond. In case, you notice any anomaly, report it immediately to the institution that granted the credit. Keep all the proofs of payment of the credit to make the clarification.
These 7 recommendations will make your life easier when taking out a loan. You will be able to make better informed decisions that will not complicate your financial future.
I am Nikesh Mehta, owner and writer of this site.
I’m an analytics and digital marketing professional and also love writing on finance and technology industry during my spare time. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected] or LinkedIn profile.