We all like to think that we are responsible with money. Even when we are in financial difficulty, it’s always natural to seek to blame somebody else – the bank for cutting off our overdrafts, our employers for not paying us enough or our partner for not being disciplined with money.
But the hard truth is that financial responsibility is beholden on everybody. If we don’t earn enough to cover our outgoings, then it is our responsibility to rectify the situation. If we are not making enough money at work, perhaps it’s time to step up and look for a new job. Or if our outgoings regularly exceed our income, perhaps we should start being honest about where our money is going and start doing a household budget every month.
Borrowing is no different: you can only make a success of it and avoid falling into more debt if you take responsibility for your financial situation. So here are the basics on how to be a responsible borrower and be able to get access to money in the short term, confident that you will be able to repay it over the long run:
Be careful about who you choose as a lender
If you are desperate for money, it’s tempting to apply for the first loan that you think you’ll be approved for. But when it comes to credit, being responsible means taking the time to choose the right financial provider for you. Despite stricter rules, there are still irresponsible lenders out there so it is important to do your research and study the market carefully before making an application. Remember that each time you apply for credit, this will be recorded on your credit record and could affect the likelihood of you being approved in the future. So take your time and study all the rates charged, the fees and the early redemption penalties (if any).
Use eligibility checks
Until fairly recently, the only way that you would know whether you would be accepted for a loan or credit card was to actually apply for one but that left a mark on your credit file that could be seen by lenders and this could affect your ability to get future credit. Now a lot of finance companies offer eligibility checkers which use a so-called soft search with your details to give you a very good idea over what credit card you might be approved for and what interest rate you are likely to pay.
Only borrow what you can afford to repay
Despite the continued choking of credit by the major banks, credit is still remarkably easy and in good supply. Whatever your circumstances, it is likely that you will find somebody willing to lend you some money. That means that a lot of lenders use marketing and online advertising to lure borrowers with promises of very large capital sums with favorablerepayment schedules. But you should not be drawn in by the apparently attractive prospects on offer: being a responsible borrower means only borrowing what you can afford to repay. If there is any doubt about your financial situation which might affect your ability to service the loan in accordance with the agreement while keeping up with all your other commitments, you probably should not be applying for such a large amount.
Once you get into a spiral of debt and difficulty repaying, it can be very hard to get out of it. Being sensible at the start can save you an awful lot of difficulty later on.
Study the loan terms and conditions
The lure of receiving a significant sum can make anybody careless. This is particularly true in an age where virtually every credit application is an online process with approvals and payments made within hours – sometimes minutes – of filling in your details. But it is unwise to simply accept an offer on the basis of a quick application and an offer. You need to give yourself time to read the terms and conditions before taking the money and starting to spend it.
You will have a cooling off period after agreeing the loan, but if you start to spend the money before this time has elapsed you are going to make it nigh on impossible to change your mind and hand the loan back. Review the contract to see what fees are due, what the exact interest rate that you’ll be repaying is, if there are any early redemption penalties and what time a lender is likely to grant you on a repayment if you are late. If you don’t understand something, ask the lender for clarification.
Always do your utmost to meet the repayment schedule
A good record takes a long time to build but can be destroyed incredibly quickly. Making sure that you always make the monthly repayments on the day agreed is critical to maintaining your good record or rebuilding it if you have had past difficulties. Paying on time will keep your fees from spiraling and stop extra interest charges. If you can, make sure that your repayments are set up on direct debit to reduce the risk of a missed one simply because you forgot to make it.
Get in touch if in difficulty
While getting into trouble with a loan can happen to anybody, how you deal with such a situation will distinguish a responsible borrower from an irresponsible one. Most lenders are sympathetic if their customers contact them in good time when difficulties are expected. Even though this can be frightening, if you know that you are going to have trouble making a repayment on a set date, call your finance company and explain the situation to them.
Remember – they dislike legal action as much as you do because they will incur additional costs which it is unlikely they will ever be able to recover. Call early and most lenders will be happy to discuss how they can help – by changing a payment date, by arranging a payment holiday, by perhaps reducing repayments for a month or two.
Article provided by Solution Loans, a technology-led finance broker with a reputation for efficiently helping customers to find the most suitable type of credit – including some great options on guarantor loans.