Borrow responsibly !

Whatever you want, you can avail instantly with the help of loans.  But, wait! Have you ever thought that if loans have made our life much simple, then why so many borrowers spiral into debt traps which is making their life severe?  The reason is – ‘borrowing more than you can afford’. Here’s a sneak peek on lending basics for guiding you aim at your goals with the help of borrowed money.

Three essential goals are to be kept in mind. First, don’t borrow more than you can comfortably handle. Second, minimize your borrowing costs by maintaining a good credit score and favoring secured loans. Finally, before retirement, you should strive to be debt-free.

Unsecured debt

Lenders grant unsecured credit without requiring anything from you as security. There is a considerable amount of risk on the lenders part, because if you fail to pay, they have to take legal action to recoup the money they lent. This is why unsecured credit generally carries a higher interest rate than secured credit. However, if you have proven yourself as a good credit risk by having a long history of borrowing and repaying money responsibly then the interest rates can be appealing.

Most people consider having one or more credit cards, which are another form of unsecured borrowing. The interest rate is often high. Indeed, while credit cards can help you manage your monthly expenses; try not to carry a large balance on a regular basis. If you find it hard to control your credit-card spending, consider a debit card instead, where money is taken directly from your bank account. That may make you more careful about your spending.
                   

Secured loans

With secured credit, an asset (called collateral) secures the loan. Due to this security, the lender assumes minimal risk – if you miss a certain number of payments, they can take the collateral. The lender doesn’t have to go the expense and hassle of taking you to court and winning a judgment before foreclosing on your home or repossessing your car.

If you need to make major home repairs or update your house, you might take a mortgage, which is another type of secured borrowing. Interest rates for home-equity loans are typically low, and you can usually deduct some of the interest from your income taxes. Remember, though, that these are secured loans – if you can’t meet the payments, your home is in jeopardy. Secured credit cards allow you to begin in the world of credit. All you need to do is put down a small deposit as security and you can start charging – and building a positive credit history.

Don’t ‘borrow beyond means’

Irresponsible borrowing can not only put you in trouble but can also make your family members’ lives difficult. If you plan to apply for a loan, particularly a home loan, make sure to only borrow what you need and can repay. Most people will want to be debt-free by retirement. While you may borrow a fair amount in your earlier twenties, you should be looking to pay off debts in your fifties, so you’ve eliminated any loans and the associated monthly expense by the time you quit the work force.

The lender will likely to check your credit score, when you apply for a loan. A higher score will increase your odds of getting the loan and may also mean a lower rate. Because your credit score is so important, you may want to head off unpleasant surprises by reviewing it yourself.

It is incredibly easy to take on more debt than you can afford. Whether the balance is secured or unsecured, the consequences for falling behind are severe. However, if you borrow wisely, you can come out ahead and achieve your financial goals quickly and affordably.

Source-secondary