Monday, January 28, 2019

Must Ask These Questions before You Borrow

Must Ask These Questions before You Borrow
It is quite normal that you have to borrow some money from friends, family, relatives or banks/ lenders for various reasons at some stage of your life. Borrowing money is not a bad idea but it all depends on the purpose and the amount of money you have borrowed and how that money will be paid back.

Whenever you approach anyone; bank, financial institutions, lenders, friends or family, they will ask many questions regarding the purpose of the borrowing and how money will be paid back. These people will also ask you about other liabilities and your total income so that can assess your credit worthiness and your ability to pay back on time.

For whatever purpose you are borrowing, must ask all the possible questions that these people would ask to you before they lend you money. It is imperative to assess your needs and financial conditions so that you don’t over borrow and if you borrow, can easily pay back and don't fall in debt trap.

To understand your needs and ability to pay back you must ask these questions before you borrow irrespective of the amount.

How much money do you need to borrow?

You must assess as how much money do you need and how are going to use the borrowed money? All these questions are bound to be asked to you. So it’s better to have answer to these questions rather than wondering. This will help you understand your needs and prevent you from over borrowing; a common mistake that borrowers commit.

For example you plan to buy a house worth 50 lakhs but you have just 20 lakhs. So you need 30 lakhs more to buy the house. So you should borrow only 30 lakhs not a single rupee extra than 30 lakhs.

Whenever you are borrowing you must ensure that you are borrowing just the difference of the price and your own contribution towards the purchase. This will help you to borrow lowest possible money.

Do you really need it?

You should always ask this question to yourself before any purchase about the usability of the item that you plan to buy. And when you plan to buy the item from borrowed money, you must ensure the usability of the purchase. You must ask this to yourself. Can you do without the purchase? Even if there is slightest hint towards yes, then you must not purchase the item from borrowed money. You should buy any item from the borrowed money when you cannot do without that item.

How you will repay?

Before you decide to borrow you should think as how you will repay the debt you are planning to borrow from the lender or anyone on time. You must have clear answer about the source and time horizon of the repayment of the debt. This is one of the most important and possibly the only most important question that the lender wants to have the answer for. So when you plan to borrow, you must have proper look on your monthly bills and monthly disposal income.

You must also consider a situation as well where you may end up losing the current income source. In this case how will you pay back the loan because nobody will listen to you whether you have job or not or any source of income. Everyone will be interested in his money than your conditions. So also think of the worst situations. These may seem to be too conservative, may be ridiculous. But these questions will keep you away from over borrowing as well as over spending during the repayment period.

Is it possible to avoid borrowing?

You must think about this question. If you can avoid borrowing then it is the best situation for you. The best way is to plan about the purchase beforehand and save as much as possible to bring down the borrowings at lowest possible levels.

Who is the lender?

It is important to figure out from whom you are borrowing. You behavior must be aligned to the type of borrowers. Usually you must have very professional attitude and behavior while borrowing as well as repaying the loan. But when the borrowers are you family member or friends, then you need to more careful as how to behave and how to pay. This will have impact on your future relationship with them.

If you are borrowing from a bank, financial house or professional lender, then you must ensure that you are borrowing at the lowest possible rates and terms. With these lenders you must have to ensure that you them on time and never fails to you pay them as this will negative impact on your credit rating.

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