If you have to borrow money, do it wisely: what do you need to know?
Everyone wants to have enough money to cover all our needs, but sometimes there‘s nothing else to do but to borrow in order to meet our other goals. In this situation, Donata Stoškuvienė, head of customer care of digital financial services company “Credit24”, highlights the key steps and recommends what to consider so that the loan would not become a burden.
1. Compare different lenders
The first step after having decided to take out a loan is choosing a credible institution which you will borrow from. Although your choice can be limited by the nature of the loan you need, you should always look for well-known and reliable financial services companies and check if they are included to the list of consumer creditors approved by the Bank of Lithuania. While choosing the company, compare the interest rates offered by different institutions and the cost of signing the contract, administration costs.
"Sometimes people don't pay attention to the cost of the contract and administration services, but I advise to spend some time analyzing them. It was in the news that recently some banks and consumer credit companies calculated interest from administrative fees as well, not just the amount borrowed, as it should be. Do not be fooled and sort out your obligations, the terms of the contract carefully and in advance. Talk with these companies' consultants and remember that there are no stupid questions here", - says D. Stoškuvienė.
"Credit24" specialist also advises to determine the conditions in the form of an informal contract when borrowing from private individuals – family or friends. Although it might seem like an easier way to get a loan, it can also cause unwanted problems.
"If you decide to borrow from private individuals, make sure the terms of the loan are clear to both parties, if possible, sign a contract. Money can ruin the relationship even if the amount of the loan is relatively small", - recommends D. Stoškuvienė.
2. Do not overestimate your capabilities
The expert reminds that, having put together all of your financial obligations, they can not exceed 40% of your monthly income. Since you may have more than one obligation, realistically calculate how much you can actually spend on repaying the loan. If you overestimate your capabilities, the quality of life can diminish, you will have to sacrifice other financial goals, such as saving for retirement or education of your child.
"It's very important to accurately calculate your ability to repay the loan you received. When you take out a loan, you should not think that in the future your income will grow and debt repayment will be easier. Take note of what is your current income. And keep in mind that a missed monthly installment or deferred payment deadline can damage your credit history and then prevent you from implementing other goals", - says "Credit24" representative.
According to D. Stoškuvienė, a loan is worth taking only if you make a rational assessment of your borrowing possibilities and do not have time to save and make such a purchase at that time. Be sure that repayment of the loan and interest payments will not fundamentally change the household's habits and will not cause financial difficulties.
3. Choose the product wisely
Everyone knows the purpose when taking out a loan, but it's easy to get confused with the various financial services offered today. To match that purpose the best and to not needlessly pay more, try to dig in deeper and think carefully if you know the exact final amount you will need. If you decide to borrow, for example, for home renovation or a journey, a simple consumer loan might not be the best option since the interest is counted for the entire amount taken, even if you do not use it all.
"If you have already decided to borrow but you don't know exactly how much money you will need at the end, a simple consumer loan may not be the best option. Already popular in Europe and getting more recognizable in Lithuania, a credit line provides you not with the exact amount of money, but a credit limit. Within that range, you can decide when and how much to use, and only pay interest for the used part of the limit, instead of possibly incorrectly predicted higher amount", - advises D. Stoškuvienė.