Care when taking a loan

With the economy’s interest rates as high as we are currently seeing, making use of personal loans and financing turns out to be a bad practice for any reader’s financial health. The watchword today is investing.

However, while observing interest rates for such interesting investments, we are under severe pressure on the domestic budget as a result of constant price increases, while our gains remain stable. The consequence of this is that many readers, unable to reduce their spending at the same rate as prices rise, end up having to resort to borrowing. At these times, it is necessary to plan well the commitment that will be made, so that today’s problem does not become a torment tomorrow.

Here’s how each loan mode works:

Borrowing from a relative or friend:

Borrowing from a relative or friend:

Many people see this type of loan as ideal as it can be relied on in the relationship to stop paying interest. Caution! If you don’t want to destroy a good relationship, consider that the person lending you the money could be getting interest in the bank. Therefore, it is wise to negotiate the loan paying the interest that this person would get in a common application – which today do not reach 1% per month. This would be the cheapest alternative to getting a loan, but one should not forget the emotional costs of this practice. Borrowing from a friend is as embarrassing for borrowers as for borrowers. Therefore, you will often be asked to pay interest and sign a promissory note (which is nothing more than a written promise to pay), preserving mutual trust and the relationship. Beware at this time too, as the promissory note is not interesting to those who owe it, it is a debt confession and can be used against you in the event of a break in friendship. Avoid proposing repayment terms, as we are often overly optimistic about planning our future. If your friend expects his money back next month and doesn’t receive it, your credibility will be shaken and the friendship will no longer be the same.

Pledge of assets:

An alternative to relatives and friends is a pledge, in which you can give the bank valuable assets – works of art, jewelry, or other measurable good – as collateral for a loan you are given. Since the risk of the bank not getting the money back is small, because it has the assets to sell, the interest rates are much lower than in other modalities. This practice should be done only when the shortage of resources is provisional and it is quite certain that some extra resources are about to arise and repay the debt. The reason for this caution is that the bank will always value the good at a price well below market, not to mention that it will not take into account the emotional value. A jewel inherited from grandparents, for example, is valued for its weight in precious metal, not even considering the artwork.

Bank Loan:

 

Available to anyone with a bank account, lending is the cheapest way to get funds without compromising on friendships and family assets. Just look for a bank manager and request an amount by checking the payment plan. However, interest rates are not low, so you should do a good research on rates at various banks before borrowing. Do not be under the illusion that you will get the best rates at the bank you are accountable for having a good relationship. Search! The procedure for getting a personal loan is not complicated, but some banks may restrict your credit if you have a dirty name on the square – due to a returned check, for example.

Overdraft:

Not the cheapest way, but the simplest way to get a loan, as you don’t even have to contact the manager. However, it should be strictly avoided, as the interest rates are much higher than the personal loan – and every customer who has a limit on overdraft should have at least the same limit for personal loans. The overdraft limit should only be used for one or two days when an unforeseen event occurs (late receipt or early deposit of postdated checks, for example).

Use of revolving credit card credit:

Use of revolving credit card credit:

This is as bad a practice as using overdraft, so it should be crossed out from any list of alternatives. In the card statement, there is a suggestive minimum amount to be paid, allowing the card user to pay the rest of the future. Do not fall into this trap! Interest rates are generally equal to or higher than overdraft charges, which would result in very large attrition and loss of money over the following months. Always pay the full amount of your card on the due date; If there is no balance in the account, contact your manager and apply for a personal loan.

Financial:

lend money without much paperwork and interest similar to overdraft and credit card. They often cater to desperate clients who need money urgently to settle a lien or not to lose an important asset that has been financed. Since they work with the highest interest rates in the economy, they tend to drive the debtor into total debt out of control, defiling his name in credit protection systems. They should also be avoided as an alternative to debt.

Loan shark:

anyone who has financial resources and makes use of these resources to lend to others. When we borrow from friends and relatives, loan sharking is not characterized because there is a relationship bond. The professional loan shark is the one who illicitly carries on an activity similar to that of a bank or a financial company, but without supervision and without paying taxes. It charges extortionate interest and generally requires its debtors to transfer assets such as automobiles and real estate. As it is not a regulated activity, it does not bother to act within the limits of the law when it comes to collecting a debt, and can become a great risk to the debtor’s personal and family stability. Not only should it be avoided, it should be reported.

Debt Replacement:

When you need money, an interesting alternative may be to sell a good for immediate resources. For example, if you have a debt of $ 15,000 and you have a repaid vehicle of equal or greater value in the garage, you can sell your car and buy another financed vehicle. This practice does not eliminate debt, but it does guarantee interest payments that are much lower than what you would pay on your personal loan – today the interest on auto loans is barely over 1.6% per month. But note that this should not be a practice to encourage as a good amount of interest is being lost. It should only be considered as an alternative to the loan when it becomes essential.

Home, car, plastic surgery and other loans:

Purchasing loans for goods and services that can be delayed is a practice that should be avoided. With high interest rates, it is much better to save to pay cash a little further than to enjoy today and to pay much more in the future, committing much of our interest income. From a financial point of view, it is much cheaper and safer to rent a property while building a savings to purchase a spot property in the future (just having the discipline to make the savings). When you buy a car, you can get great discounts by paying cash. When it comes to plastic surgery, it is much healthier to wait a little and pay cash, as it is likely that the wrinkles that arise from worrying about unnecessary debt will require new surgery in a short time.

This information will be very helpful when choosing the type of loan best suited to each reader. But the most important tip is this: Try to pay off your debts as soon as possible so that you spend less money on interest. If you have multiple debts, start by eliminating the most expensive debts first, or replacing them with cheaper ones.