Borrowing money for the first time can be a scary thing. It’s not scary for everyone. Some people seem born for it and have no problem at all taking out all kinds of money on credit and through methods. This latter camp, however, seems to have a somewhat tenuous grasp of what borrowing means. If they were to realize how difficult it can be to pay off a loan, or the effect that over-borrowing can have on personal credit, then they might borrow with a little more caution.
If you’re a tentative borrower, you’ve likely not screwed up your financial life too bad yet. This is a good thing. You’ve got lots of options in front of you, and lots of ways to lay a good foundation for the future. So should you borrow money now or not? What should you look for? What should you avoid? There is a lot of thinking to do on this topic, but luckily this isn’t overly complex stuff. Once you have it, you have it. The good people at Very Merry offer text options to answer any questions not answered in this post. So let’s go!
So when should you borrow? Borrowing money is a good idea when you need to improve your life in practical ways, but you don’t have the resources to do it. Examples include education, residence, transportation, anything big and important but also expensive. Let’s take education for example. Most people don’t have $40,000 lying around to pay for a top-tier education. So they’ve got to borrow. Fortunately, student loans are designed to be affordable. But for students just exiting an educational institution, these can be difficult to pay off at first, until employment opportunities emerge. Despite this, these challenges can be taken into account in advance, and the whole thing can go according to a careful plan.
When seeking out a loan, it’s important to carefully consider the terms. Terms are the rules that loans go by. They describe how much you’ll borrow, how much you’ll pay to borrow it, how long you’ll have to pay, and other details. It’s important not to overlook these considerations. The APR and interest numbers will be two of the most important. These are almost the same thing (the only difference between APR and interest rate is that APR includes other fees, too). Your APR is how much you’ll pay every year to borrow money. The longer you take to repay your loan, the more you’ll pay for the privilege.
Therefore, it’s best to borrow if you’re able to pay quickly. Theoretically, if you were to take out a loan and suddenly be able to pay it back the next month, that borrowing would have been done for free. Also, look for loans that allow for early repayment. Some of them will actually penalize you if you pay early! There are many other considerations, but if you think about your prospective loans according to these criteria, you’ll likely not make any huge mistakes. Good luck!