4 Ways of Borrowing Money Responsibly
And debt seems to be the most of the three as even people not interested in personal finance will encounter and use it.
And today we have guest blogger Kyle to help us use debt responsibly.
You already know that borrowing money means being able to pay it back on time or on a fixed schedule, at a fixed amount. Odds are you experience this with credit card or personal loan payments.
Let’s assume that you haven’t experienced any of this, and you do want to borrow money for any number of reasons. It’s not the same as asking your friends to lend you a little cash, which you can pay back whenever they ask for it. Borrowing money from banks or other financial institution entails responsibility, and being able to borrow money responsibly means items need to be marked off your checklist before anything else.
Honesty is the best policy
Some may remark that it’s a tired adage, but when it does come to asking for a loan, you’ll want to be as accurate and honest with your details as you can be. It’s folly to think that a bank or lending entity will approve your request for a loan if you declare a higher salary than you actually have because they will look into your records, and call your place of employment.
Being honest to the best of your knowledge prevents any untoward issues with your application, the worst case being that the bank not only denies your loan request but also puts you on a watchlist for fraud.
Don’t avoid other debts
Another quick way to go about being an irresponsible borrower is to avoid any debts you might already have, or failing to list any credit cards with other banks. Your application hinges on being transparent, and if you don’t disclose it, lenders can find it when they process a credit check through the Credit Management Association of the Philippines (CMAP), and your application goes down the drain.
The CMAP is in charge of the records of credit cards, and various loans throughout the country, for a period of five years.
Mind your capacity
When you are approved for a loan or a credit card, some lenders will tell you what your lending capacity is. Credit cards will have a credit limit attached to them. In either case, this is a pre-determined amount of money that you can borrow based on your salary minus other expenses at the time of application.
For loans, you may be given a range to choose from based on your capacity to pay. For example, a given capacity for a loan may be between Php 60,000 to Php 80,000. The trick here is to borrow only what you need and no more than that. Your repayments will be less if you loan the minimum amount in your range as opposed to the maximum.
Borrowing only what you absolutely need also eliminates any impulse spending you might be tempted to do.
Stick to the plan
A loan will have a payment schedule that you can set. It’s important that you meet these payments on time or ahead of time because the CMAP will have records of whether or not you were able to make payments on time.
Some lenders do allow for flexibility, usually within 24-48 hours of your actual deadline, if you’re going to be late with payments. Know that this flexibility is largely on a case-to-case basis. Missing payments can mean having to pay more money just to repay your loan, which is something you will definitely want to avoid.
You may be borrowing money for any number of reasons, and all of them are valid if you know you can afford to make the repayments. It is also important to note that being debt-free is preferred than being in debt.
If you really must borrow money, keep these in mind, and your application should go off without a hitch.
Kyle Kam is from MoneyMax.ph, a financial comparison website aiming to help Filipinos save money through diligent comparisons of financial products. Follow him on twitter @undisputedkyle