Borrowing money is never ideal but may be necessary. Knowing how to use credit as a tool is essential in mastering money.
How to Borrow Money with Best Rates and Minimal Stress
People borrow money for a number of reasons that include major purchases such as homes and cars or to pay for college tuition.
When you borrow money, you’re most likely borrowing from a bank, credit union, or financial services company. Borrowing money means you’re being extended credit for use in a purchase or project. And in some instances, you’re borrowing money from family and friends.
Credit isn’t inherently bad. It’s a tool. A tool that enables people to pay for important things. However, credit can be misused that lead to long-term debt. Debt can add undue financial stress and impact your wellbeing.
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Is there good debt and bad debt?
Whether it’s good or bad, debt is still a financial obligation that must be repaid. If you don’t have enough money saved or assets available to pay off the debt, then you’ll be required to allocate some of your income for repayment.
If you do borrow money, it’s in your best interest to pay it off as soon as possible.
Make Sure Borrowing is the Right Choice
Consider borrowing when you’ve exhausted other options. Ideally, you have savings to cover emergencies and planned purchases.
There are also different types of borrowing: credit card, student loan, personal loan, auto loan, and a mortgage.
1. Run your numbers
Really think it through before considering a loan to finance any purchase. You want to understand the total cost of borrowing which isn’t solely about monthly payment but the actual total interest paid for the life of the loan.
Remember, the less money you need to borrow the less you’ll actually spend on any financed purchase. You can save money to pay for a portion of the purchase and finance the rest. Thus, lowering the amount of financed and cost of borrowing,
2. Shop Around for the Best Rates
Not all lenders and creditors are created equal. The less you know the more you’ll pay so it’s important you’re knowledgeable about loan types, credit reports and scores, and your options.
Contact your bank or credit union
It may be easier to borrow money from a financial institution you already have a relationship with. For example, when it comes to auto loans, getting a pre-approval before heading to the dealership can ease the car purchasing process.
Use an online marketplace
There are many lending marketplaces that help borrowers find the best loan terms and rates with one simple application to get preapprovals from multiple lenders. You’ll be a smarter borrower when lenders are fighting for your business. And the good thing about some of these online marketplaces are preapprovals that don’t impact your credit score.
- Check the phroogal financial marketplace for loans and credit options.
What You Need to Know About Credit to Borrow
Improve your chances of being approved with better rates and terms by having very good to excellent credit.
Credit Report
A credit report is a detailed report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.
Credit Score
A credit score is a three-digit number reported created from information found in your credit reports and offered by credit bureaus and other agencies such as FICO. It’s used by creditors or lenders to determine whether to lend you money and what interest rate to charge you.
Review Your Credit
Before applying for credit, review your credit report to ensure accuracy. If you discover inaccurate information, dispute directly with the credit bureau.
It’s important to review your credit report once a year to ensure the accuracy of information. Inaccurate information will result in incorrect scoring and potential denial of credit or loans. Get your credit report from all three credit bureaus through AnnualCreditReport.com.
Monitor Your Credit and Score
There are many apps available that provide you access to credit monitoring, credit report cards, and a free credit score. Using one of these free apps can help you stay on top of your credit
Learn More: How to Take Control of Credit and Gain Peace of Mind
Borrowing Money With Bad or Less Than Perfect Credit
It’s difficult to borrow money if you have bad credit. In fact, any loans or credit offers you may receive will have higher interest rates and less than favorable terms. Improve your chances of borrowing money with better terms by improving your credit.
Consider credit builder accounts or secured credit cards and secured loans to strengthen your credit history and score.