Know how to choose a loan to pay your existing debt
March 7, 2019
Although the banking entities were several years without hardly granting credits, at present they are already a little more willing to grant them. When banks denied loans, private equity companies were responsible for solving the financial situation of many people and companies. However, some of these people and companies made mistakes when choosing the loan that best suited them and their purpose, this can have as a consequence an over-indebtedness and the impossibility of facing the payment of the loan.
Therefore, if you are going to apply for a loan, the mistakes you should not make are:
- Not inform you properly. When you apply for a loan, you are going to sign a contract which you must fulfill. Before accepting the money, you must know what conditions you will accept. A loan carries interest, a period of time to return it, commissions, perhaps insurance, you must know the APR you have agreed to know how much that money will cost you in reality…
- Ask for more money than is needed. Before applying for a loan, it is necessary to calculate how much money is actually needed. Asking for more money can be a temptation, but you will also pay more interest for what, ultimately, will be much more expensive.
- Do not choose the correct return time. If a long period of time is chosen to repay the loan, the monthly installments will be lower. However, in the long run, that loan will be more expensive, because interest is paid every month. The shorter the return time, the cheaper the loan will be.
- Do not pay attention to linked products. Some entities put conditions on their clients to grant them a loan. This can be domicile the payroll, receipts, hire insurance… before accepting any condition it is necessary to know if it really suits us. Perhaps when changing banks, we lose conditions that are considered seniority, or that other conditions that demand us do not suit us.
- Overcome the capacity of indebtedness. The fees that are going to be paid for a loan must not exceed 35 or 40% of the money left each month after having met all the fixed expenses, these are the payment of the mortgage or rent, receipts, payment of other credits… and any expenses that you have every month. Unforeseen events occur, if you exceed your debt capacity you will not be able to face the payment of the loan.
- Not knowing the payment terms. Before signing a contract on a loan, you must know what conditions you are accepting. In addition to informing you of how much you are going to actually pay for the loan, you must also know if it is possible to repay the loan before the agreed date and thus pay less interest, and also what happens in the case of not making the payment on the date indicated
- Do not contact the entity in the case of not being able to make the payment. It may happen that, no matter how much goodwill you have and how much you may have planned, you can not pay for the loan any month. In that case, it is very important to contact the entity that has granted the loan before the payment date arrives and it can not be done. The entities, banking and private capital, do not want to reach a trial, for them it is better to negotiate another period of time. If you are in that problem, contact the entity that has granted you the loan, you will find a solution. Failure to do so will generate default interest and the debt will become more expensive, it will also affect the client’s credit history, thus, you can not request a loan from any other entity, neither financial nor private capital.
- Have other loans or credits. Before applying for a loan, you must settle the debts you have for other loans. Accumulating payments every month will only cause your economy to be affected, you will not enjoy the money and you will live with greater anxiety
- Do not take into account the intelligent indebtedness. If you are going to request a loan, keep in mind that it is a money that you are buying, think if you really need it and for what. Intelligent borrowing consists of borrowing money to invest it and generate profits. If you are going to request money to improve your business or to buy a vehicle as a tool that you need to earn more money, then you are indebted wisely. If, on the other hand, that money is going to be used in a fast consumer good, you will be paying for something that you do not have and that has cost you more than it was worth.