Everyone needs to borrow money at one time or another. And there’s no lack of options available. Here’s a tip: make sure you choose your lender carefully. Accepting some money from Aunt Bettie is probably not a good idea.
Do your homework
First, ask yourself some questions. Why do you want to borrow money? What is your income? How much debt do you have? How much do you have in savings and investments? If your personal finances are in bad shape, don’t hesitate to talk to a representative at your banking institution to see more clearly why things are out of whack.
He who borrows must repay
Borrowing money isn’t the same as getting free money. Make no mistake; you will have to repay what you borrow, plus interest. Whatever the reason for the loan, establish a budget to determine how much you will be able to repay and with what frequency.
The best debt solutions
There are several ways to borrow money, depending on the amount you need:
- A credit card from a financial institution. With your credit card, it’s possible to borrow a small amount (at a very high interest rate). Do this only if you can repay it fully upon receipt of your monthly statement.
- A personal bank loan. This is the way to go if you want to buy a car, return to school, buy furniture, pay your taxes, or finance a home renovation project.
- A line of credit from a financial institution. This is the solution if you know something about managing your finances. With a line of credit, you have access to an amount of money that you can use as you see fit.
The worst debt solutions
In some cases, borrowing money may cost you dearly:
- Pawn shops. Not only do you have to leave something of value as collateral, but if you cannot repay your loan on time, you end up with exorbitant interest fees in addition to losing your property.
- Classifieds. Beware of those ads from private lenders that say you can get money quickly and without a credit check. Most of the time, private lenders go heavy-handed with interest rates and fees, and they may also go that way when it comes to collecting.
- Aunt Bettie. Borrowing money from a family member or a friend seems advantageous. Relaxed repayment terms and very low or even zero interest—sounds good, right? But what will happen if you have trouble repaying what you borrowed? Relationships can sour quickly when money is involved. Also, keep in mind that if your lender were to die suddenly, you would have to negotiate repayment with the estate.
Getting a loan from a recognized financial institution and paying it back on time is a great way to establish or improve your existing credit rating. And with a solid credit profile, you can start to dream about financing some of your future projects.
