7 important tips on how to borrow money responsibly

Photo Credit: ©iStock.com

It is important to understand that borrowing money is a two-bladed sword. It can be beneficial to you, or it can end up putting you in many problems, and the difference lies on how you borrow, and why you want to borrow.

No one wants to land in debt, or even get to the level of bankruptcy, and with that understanding, here are important tips to help you borrow in a way that will be of benefit to you.

1.    Exhaust all other options first

Before getting a loan, look into whether you can actually afford to raise money to meet your need.

Some smart ways of raising money might be cutting down on your luxuries, looking for additional income sources, making use of your savings, or borrowing some money from your friends and family. The above sources will not cost you as much as the loan would.

2.   Get the best deal you can

Different lending institutions have different terms and conditions, and ways of charging their interest on loans, and it is your responsibility to get the one that works for you.

Settling for the first deal you come across is not the best way to go about it, make sure to compare as many options as possible.

3.    Think about how much you really need

Before you get excited over the amount of money that you can actually borrow, make sure to borrow the exact amount that you really need.

Have in mind that the more you borrow, the more interest you will have to pay; meaning that the more you borrow, the more you lose from your hard-earned cash. 

4.    Understand the terms and conditions of the loan

Most people do not take the time to understand all the details of their loans, and this leads to incurring huge costs in terms of interests and penalties.

You must understand the contract you are getting into because the moment you sign the document, you will be liable for any cost implications and fees it entails.

5.    Get a loan you can afford to pay back

It is not a good idea to get a loan, no matter how small if you are not sure that you can pay it back. If you have a constant income and you know that you can manage to pay your loan over a period, then you can discuss the terms with your lender, but if you do not have a way of paying back, it’s a bad idea to get a loan.

6.    What are you planning to do with the money?

If you are borrowing a loan to spend it on a luxury item, or to pay for a holiday, then your priorities might not be in the right place.

If you are borrowing money to fund an investment, a project that is likely to pay back the money and leave you with a profit, then you have your priorities right. Borrow for something whose value will appreciate with time.

7.    Have a strict spending plan

Make sure to use the whole amount on the need you want to finance. If you spend the loan on other needs, you will need to borrow another loan to meet your initial need, and this will land you in debt.

Visit Business Directory for a list of licensed money lenders in Singapore.