Finances

5 Most Common Mistakes to Avoid When Borrowing Money – 2020 Guide

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Written by John Marmolejo

For most people, borrowing money is the last option they want to use while going through a financial imbalance. It can be embarrassing, as well as mentally burdensome. On the other hand, sometimes it does make sense to borrow some money. If you are going to make a current situation easier for yourself, why not. People ask for help with finances for different reasons. Sometimes they need it to start building a house, to pay a car installment, or just to go easier through the end of the month. These are all valid reasons, but anyway, you should act wisely.

When getting a money loan, people make some common mistakes. Some of them aren’t that bad, but others can have longterm consequences. With money, it usually starts innocently, but often it becomes a snowball, getting larger with time. Loaning money can sometimes lead you to larger debts, as well as losing control of your finances. If you’re not paying attention, you might get in a lot of trouble. That’s why you want to act smart and avoid all possible mistakes. Here are some of the most common ones:

  1. Not being informed

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We understand that you’re excited about starting a new business, or impatient about finally getting some cash flow. You have extraordinary plans, and money can help you to make them true. It may sound so easy and quick.  But if you agree with the first option that crosses your way, you can end up very disappointed in a few months or years.

There are so many offers out there nowadays. Although some of them sound very attractive at the first moment, you don’t want to make reckless decisions. Make sure you read terms&conditions and fully understand the calculation of the loan. A great one is just the right information away. But we recommend taking some time to do your research and be sure you’re going to be satisfied in the long run. Otherwise, you might end up finding out you could find so much better deal. But unfortunately, you weren’t informed enough to make a smarter decision.

  1. Settling for a high-interest rate

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Another thing that also falls under the “not being informed” section. But since it is particularly important, we should talk about it separately. Going with a high-interest rate can be one of the worst steps you could do to your finances. With so much information, you might end up losing track of what your final interest rate will be. But that doesn’t mean you should just let that go. With so many choices available, it is pretty reckless not to explore all the options.

Firstly, you should figure out how much money you need. Depending on what you plan on spending it, you’re going to need a different amount. You won’t be taking the same loan for a wedding, a new car, and starting a new business. When you have that info, now you can roll up your sleeves. With a little bit of luck, you can find the right loan with a good rate, too. Keep looking and you’ll find the one. Some banks, such as Ikano, offer an option to calculate your final loan. You just enter the loan amount you want to take and the running time. They will let you know what is the final amount so you’ll know what to expect.

  1. Having a bad credit score

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Another thing you should keep an eye on before applying for a loan. Having a bad credit score can minimize your odds of getting a low-interest rate or even having your loan approved. Completely ignoring your credit score can lead you to an unwanted outcome. We always recommend checking and being aware of where you’re at. Being realistic and open to making positive changes can get you far away. If you’re satisfied with your credit score, that is amazing. But if you notice the situation is not the best one possible, you should take some steps. There are a few ways you can improve your credit score. And we don’t advise trying to borrow money before making it proper.

  1. Being late with payments

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Not just that being late with your payments will cause you stress and confusion. It can also negatively impact your credit score and make you earn some extra fees. If you’re never making payments on time, it probably won’t pass unnoticed (and unpunished). If you keep forgetting about doing it, just make it an automatic option. That way, you don’t even have to think about it. Why pay extra money just because you’re being lazy or forgetful? Take care of this, and you’ll avoid unwanted consequences.

  1. Not being realistic about your budget

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It is not rare for many people to borrow money to repay their old debts. It can be a smart move, but only if you know what you’re doing. Even if asking for another loan sounds logical to you, don’t get too caught up. The main question is: are you able to repay the new loan you’re taking? If you have a plan and an adequate budget, go for it. But if you’re making another debt, and relying only on good luck to pay it off, it will get you nowhere. Be honest with yourself and make a good plan. Only then you’ll be able to put things under control.

Conclusion

People loan money for many different reasons: for weddings, funerals, new businesses, or just to survive the rest of the month. Borrowing money can be a smart move and make sense if you pay attention to a few things. And it also can make your life a nightmare, so you want to avoid some common mistakes. You should always do your research and get all the needed information before making your final decision. Having a lack of valid data can be a huge setback. If you settle for an unreasonably high-interest rate, you will end up repaying a much larger amount of money. Always check your credit scores, make automatic repayments, and be honest with yourself. If you don’t see yourself being able to repay the debt, then it’s to best not to get it and just find an alternative option.

About the author

John Marmolejo

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