If you have decided that you need a loan, then it can be tempting to borrow more money than you need. It isn’t even that easy to always work out exactly how much you should borrow. Even when you are borrowing for a fixed price item, such as a home or car, you may not be sure how much to borrow. Below are some tips to help you to make up your mind.
Use your savings
Before you borrow any money you should take a look at your savings and see whether you have enough to cover the costs of the item you were thinking of borrowing money to buy. There are people who do not like the idea of using their savings but it is far cheaper to do this than to borrow money to pay for things. If you borrow then you will have to pay interest on the loan and you may need to pay other fees as well. You will also get into trouble if you cannot make the repayments. It is far better to use your savings and save the money and prevent yourself from going into debt. You can always start saving again with the money that you would have had to find to make the loan repayments.
Only borrow what you have to
It can often be tempting to borrow a little bit of extra money to what you actually need just in case or because you would like to buy a few extra things. As borrowing is so expensive, it is much better to avoid doing this. Just borrow what you need not any extra. You will not only save money but it will be easier to repay as repayments will be smaller and you will not need to repay it over such a long time period.
Check you can afford the repayments
It is really important to make sure that you are able to cover the cost of the repayments before you borrow money. Find out how much you will be having to repay and then work out how you will afford it. Consider whether you can cut down your spending on some things to free up some money or whether you will be able to manage without doing so. You might need to see if you can earn more money, perhaps by working more hours or getting a second job. It is also worth considering how you may manage the repayments if you did get short of income or your expenses went up. There is also the chance that interest rates may go up and that could have an effect on the cost of the loan and how much you will gave to repay each month.
Look out for hidden costs
It is wise to make sure that you do not get trapped into paying hidden costs unnecessarily. This will all depend on the loan but you could be charged for all sorts of things. You would probably guess that you will be charged if you miss a repayment, but you could also be charged if you overpay as well. You may be charged for asking for extra statements and if you have a credit card you could be charged for drawing out cash or using it abroad. It is vital to be aware of all of the situations where you may be charged so that you can avoid them where possible. If you think that there are hidden costs this will increase the total cost of the loan and may mean that you will not be able to afford to borrow as much.
Find the best deal
It is worth taking some time to find the best possible deal for you. If you can keep the costs down then it could mean that you will be able to afford to borrow more money. Do be careful though and make sure that you are not tempted to borrow more than you need because it seems a good deal. You will have to repay more if you borrow more so it is sensible to keep borrowing to a minimum.
So it is wise to make sure that you do not borrow too much money. Borrow just as much as you need and if you have savings use them instead. Make sure that you are aware of all costs, are capable of making the repayments and find the cheapest deal so you do not end up paying out more than necessary.