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Throughout your life, you will be faced with various financial choices to help you achieve your goals. This could be anything from applying for a mortgage to buy a house, student loans to help you achieve your career objectives, or additional funds to help you start a business. Making informed borrowing decisions is crucial to your financial well-being, which is why you need to consider financial decisions carefully. Below, we’ll take a closer look at strategies to empower you when it comes to making smart borrowing choices now and in the future.
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Understanding your financial situation
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Before you can determine the type of loan you’d like to borrow, you’ll need to consider your financial situation. Whilst it can be tempting to ignore any debt or money worries that you have, facing them head-on is advantageous and will help you make the next steps. Assess your income, expenses, assets, and liabilities. Create a detailed budget to help you determine how much you can afford to borrow and repay your lender each month – remembering to include interest payments.
Types of borrowing
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You can then start to consider various types of borrowing to find the best option for you, including:
- Personal loans: These loans can be used for a range of purposes, and often lenders won’t restrict you when it comes to choosing what to use them for. They come with fixed rates and terms and can help manage everything from home improvements to debt consolidation.
- Credit Cards: Credit cards allow you to make a purchase and pay it off after a certain amount of time. This could be in instalments or all at once. They come with varying interest rates.
- Mortgages: These loans are long-term and used to purchase property. They have fixed or adjustable interest rates and are secured by the property you choose.
- Student Loans: These loans are designed to help you pay for education, they have lower interest rates and flexible repayment options.
Assessing total borrowing costs
Once you’ve chosen your loan, you’ll need to assess the borrowing cost to determine whether you can afford the repayments. This includes the loan itself, interest rates, and additional fees. Make sure you’re aware of all the costs that come with applying for a loan to get a clear idea of how much you’ll be paying each month.
Credit score and borrowing
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Before applying for a loan, assess your credit score. Your score shows lenders how creditworthy you are when it comes to borrowing. A low score reflects that you might be a risk to the lender. A high credit score means you’ll be more likely to benefit from loans with lower interest rates. Improve your credit score before applying for more favourable terms.
Finding the best deal
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When applying for a loan, you’ll need to think about how you’re going to benefit from the best deal. Here are a few factors to consider:
- Interest rates: Interest rate charges will differ depending on your lender, your credit score, and the type of loan you choose. Compare these rates for the most favourable terms.
- Loan terms: Consider your loan term length and how it will affect how much you’re paying. A shorter-term loan typically means more expensive monthly payments. A longer term means more affordable payments but you’ll be charged more in interest. Weigh up which is the best option for you.
- Additional fees: There may be additional fees when it comes to your loan, like application fees, prepayment penalties or late repayment fees. These can all add up when it comes to the total cost of borrowing.
- Fine print: Always read the fine print. This will help you understand the terms and conditions of your loan, and allow you to consider the repayment schedule, interest rates and other clauses that may affect your ability to repay the loan.
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