It would be easy to tell you that the reason you need a loan doesn’t matter. The fact is, though, that it does. Your reasons for borrowing and the events that led up to your applications will play a large role in whether or not you are a successful borrower or if you are simply reinforcing a pattern of overspending and then taking whatever deal you can get to stay afloat. We’ll get into that later on. First, though, let’s talk about the borrowing process and what you can do to set yourself up for borrowing success.
Do you really need whatever it is that is making you search out loans? Or, are you trying to find a way to finance an indulgence? It is important to be as objective as possible here. If you don’t need a loan, it is better to save up for big purchases. If you truly do need the loan, though, it is important to be smart about obtaining it.
It can be tempting, especially if you are in dire financial straits, to apply for the largest amount you can get. You need to resist this temptation. Borrowing more than you need is one of the fastest ways to set yourself up for lender failure. Be honest about how much you need and then look for loans that accommodate that need. For instance, most regular banks require borrowers to take out a few thousand dollars at a minimum. If you don’t need that much, look for alternative loans and easy installment loans that will allow you to borrow less.
Just Say No
If you’re desperate you might be tempted to take out a payday loan. If your credit is truly terrible this might seem like your only option. It isn’t. Payday loans are predatory loans that are built to keep you in borrowing mode. Their interest rates are incredibly high and their repayment terms extraordinarily strict. There are always other options available. Always.
What Can You Pay?
This is another area where honesty is the best policy. Be brutal with yourself. The question is not what you hope you can pay back. It isn’t even what are you pretty sure you can pay back? The question is what do you know you can pay back? If you’re taking out an installment loan, figure out how much you can afford to pay toward your balance each month. Do not take out a loan that requires you to pay more and then hope for the best. Even if you just signed a contract for a new job with more pay, only take out as much as your current budget allows. Optimism is great in most areas of life. In personal finance, however, optimism is what leads to missed payments, defaults, collections, etc.
Mind Your Credit
If you have less than perfect credit, finding a loan can be difficult but it is not typically impossible. You just have to spend more time searching. Be wary, however, of lenders that guarantee loans even “without a credit check.” These are typically scams that are designed to get your personal information. When handled correctly, even a loan designed for people with bad credit, can help you improve your credit rating. Look for loans that report your payments to the major credit bureaus. Making payments on time should offset whatever ding comes from opening another account or having a less than awesome debt-to-income ratio.
Most of all, as you work to pay off this loan, you should also be working to stabilize your current financial situation. This might mean making some hard and bad-tasting choices like moving in with a friend or relative while you pay off your debts and save up for a new place. Do what you need to do to get out of the borrowing cycle. There are hundreds of resources out there that you can use to help you do this.
Taking out and repaying a loan should be a straightforward process. For many people, it is exactly that. And, as long as you avoid the mistakes we’ve talked about here, it should be that way for you, too!