Borrowing money is often a fact of adult life, where one requires a financial boost to cater for emergencies, overwhelming piling bills such as rent, school fees, utility bills and other personal or business needs.
For continuity, maintenance or sustenance of businesses, capital and restocking is crucial to ensure seamless business operations. Most business owners borrow loans to cater for major expenses relating to business locations, new inventories, equipment, and furnishing among others.
Similarly, individuals also borrow personal loans for various reasons such as buying a home, a vehicle and funding college tuition or special events.
In this day and age, there are numerous avenues to source funds from lending institutions such as banks, credit unions, digital lenders as well as peer to peer lending.
However, some borrowers do not honor their pledges of repaying, and end up in problems with debts and lack of trust from friends and family who lent them money. Others could be taken to court or lose valuable possessions to auctioneers.
To avoid pitfalls of borrowing, being a responsible borrower provides you with even better opportunities down the road to expand your business, borrow at better rates, expand your loan limit and improve your overall credit score.
Would you like to make the right finance decisions when borrowing? Here are tips of becoming a responsible borrower.
Understand the purpose of borrowing
If you decide to take a loan, it is important to have a clear purpose for the loan. This will guide you in having a well outlined budget before taking the loan. This is the first step to responsible borrowing because by understanding the purpose of a loan you evade the possibility of mismanaging the loan.
Drafting a repayment schedule
Once you understand how much you are borrowing and for which purpose, it is also essential to draft a repayment schedule. This will help you to know the installment you can afford as repayment versus the repayment period, in a bid to help you to stay organized and keep you on the payment track as agreed with your lending institution. If you manage your loans well and can easily pay the installments, then it should not cause you any problems.
Keeping a good credit information report Having a lot of credit dues in your name can easily affect your credit information report from credit reference agencies. It is crucial to make one’s refunds in a timely manner for all dues before the final date to avoid lenders ranking you negatively based on your credit history. It is important to keep a tab of money you owe to ensure regular repayments. These include credit card dues, equated monthly installments and other utility bills. Planning on how to make repayments is a good method to avoid penalties in case of late payments that also attracts high interest rates.
Have different types of creditors
Having a mix of credit accounts with proper payment schedules portrays the borrower as responsible and not a credit risk to the lenders. Being able to properly manage different types of credit and repaying them accordingly gives lenders a high view of you, portraying you as a responsible borrower who qualifies for loans whenever you need it.
Review your credit history regularly
While lenders monitor your credit history to understand your financial behavior, it is importance for you, the borrower, to regularly check your credit history for better planning and consistency in repayment of dues. At times, some lenders can have errors in keeping records of your already cleared loan. Such errors could affect the borrowing capacity and ought to be corrected before applying for a new loan.
Being a responsible borrower requires one to plan themselves properly as well as seeking financial consultation from your banking partner.
Financial literacy is important to guide any borrower in a bid to fulfill the monetary needs and repay responsibly. At Family bank, we take pride in transforming people’s lives by creating access to flexible and affordable financial services. Talk to us today and explore our various loan options.