Having enough money to be able to fund whatever we need is a situation that we aspire to achieve and sustain.
However, a lot of us can face times when we do not have the money required to fund something that is very important or is an emergency expense.
It’s this particular point in time when we realise that we do not have enough funds to meet such an expense that can induce panic and stress for us.
We are much likely to then consider borrowing some money, or taking out a loan to help us tide things over, be it through a credit card or a personal loan of some kind.
So, to help you borrow wisely so as to save money on what you borrow, we have put together our list of Five Top Tips:
Tip #1: Understand what it is that you are borrowing money for
This may seem obvious, but because of the level of importance it carries, we think that it’s worth talking about.
This is because lenders are likely to ask a potential borrower why they need to borrow money in the first place. They ask this to help them understand how the money is likely to be utilised and why it is important for the borrower to be able to meet the cost that they are borrowing for.
Tip #2: Calculate what you can afford to borrow
Remember, it is likely to cost you more than the amount that you actually wish to borrow. This is because the lender is likely to charge you additional interest fees, which is known as the cost of borrowing.
There may well be other ‘hidden’ fees including late fees, early repayment fees, etc. and you should read the fine print first before you sign up to a credit card or loan agreement.
Tip #3: Be wary of “Buy Now, Pay Later” offers
It doesn’t help that banks, lenders and other businesses have been marketing so-called ‘buy now, pay later’ offers to consumers by making credit useable for everyday purchases and impulse buys.
We would suggest that you ask yourself whether these are sensible reasons for taking out credit, unless of course if you can afford to pay off the loan, as well as the associated borrowing costs that come with it.
Tip #4: Creditworthiness – the key to low interest loan offers!
Being granted a loan that comes with low interest rates may be easy for some and not so easy for others.
This is because lenders usually check to see how much financial risk a borrower is likely to have and how likely they are to be able to repay the total amount due on time and regularly.
This is where the concept of creditworthiness comes from. If you can be trusted to make credit repayments on time, every time and in full, then your level of creditworthiness is reflected through a high credit score.
If you have had issues in making credit repayments in the recent past, i.e. within the last 6 years, then you may find that your credit score is on the lower end of the scale, which can indicate to any potential lenders that your level of creditworthiness is low.
Tip #5: Keep an eye on your credit score and credit report!
Your credit score is a numerical value that ranges between 0 and 999, where the higher the value is, the lesser financial risk you are likely to have, particularly in the eyes of lenders and any other third parties that view it.
Your credit report is an important financial document that contains your credit history – i.e. your credit activity – within the past 6 years as well as any public records that you are registered on, such as the Electoral Roll.
Your credit score and credit report are generated by certain bodies called Credit Reference Agencies and you can usually view these by writing to them individually to receive a copy for a particular month, or by subscribing to a monthly online service.
Having a high credit score can help you to get a loan or credit card that comes with low interest rates as well as terms and conditions that are more favourable for you.
You might also find this Credit Savvy quiz useful.
About the Author
MyCreditMonitor (www.mycreditmonitor.co.uk) provides you with your credit score and credit report and helps you improve your credit score.
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