Urgently need money. What to do?
Seven tips for borrowing and not being trapped in debttags.
Undoubtedly, various loans, leases, consumer loans and credit lines can significantly facilitate our lives. It is unlikely that someone will want to save 40 years, so that by the age of 60 or 70 they will finally buy their first home! And repairs, as a rule, are needed today, and not after two or three years. And if a car or a washing machine breaks down, they need to be repaired right away! Therefore, there are situations when a 1000 loan can become that magic wand that helps to improve the quality of life or solve unexpected problems. The main thing is to borrow wisely!
The best thing is to borrow
If you have a savings account on which you save money, for example, for a trip or a new car, then in a crisis situation you can easily borrow from yourself! Provided that you will have a clear plan on how to return this money in one payment or dividing the amount by several months. In addition, it would be honest if you rewarded yourself and paid an additional 5-10% for using the loan. So you will not only save on the interest that you would have to pay by borrowing money elsewhere, but also earn!
Do not overpay interest !
At first glance, it might seem that 5 euros in interest for a loan of 50 euros is not so much. However, to understand the real value of the loan, you need to look at the annual interest rate (AIR). This is a standardized method of calculating the cost of lending, as it includes all the costs of the loan - the price of the goods, down payment, commission fee that is payable at the time of loan processing, as well as interest and other payments that the consumer has to pay for the time of using the loan.
If under the terms of the contract for a loan of 50 euros for 30 months you overpay 5 euros, then the annual interest rate can be calculated as follows: 5 euros (overpaid amount) x 12 (number of months) = 60 euros (overpaid amount for the year). Accordingly, the interest rate is 60 / 50x100 or 1.2x100. This is 120% per year! Often, interest rates of "quick loans" can reach 180%, while annual interest rates on bank consumer loans range from 9% -18%.
Therefore, before taking a loan, always pay attention to the annual interest rate, which, according to experts of the Center for Consumer Rights Protection, is required by law to indicate absolutely all financial institutions issuing loans. However, as practice shows, it is not always noticeable, hiding under the links "Standard Information", "General Conditions", etc. If AIR is more than 20%, we recommend looking for other, more profitable solutions. The experts of the Consumer Rights Protection Center advise to consider all the offers available on the market and, if necessary, seek the advice of specialists. It may take you more time, but then you won’t have to overpay for many years.
AIR is a single method of calculating the interest rate, which uses the following criteria :
- Interest rate
- Other obligatory payments
- Duration of the loan agreement
- Size and period of payments
Evaluate your ability to repay a loan - this is not an empty phrase !
Often, when borrowing money, we want to believe that it will be easier to return it in the future, because incomes may grow, and we will finally learn to live more economically! I really want to believe that this is how it will be, but in this case it is better not to rely on hopes, but to proceed from real incomes and expenses. According to experts of the Consumer Rights Protection Center, the total amount of debt should not exceed 30-40% of the total income. In addition, it is important not to give in to the temptation to borrow more in order to pay off existing debts. At the initial stage, the idea of taking another loan to pay off an existing debt may seem good and can even help you out for a while, but more often it will create much more serious problems for you in the long run.
It is safer to borrow in your bank
Why? Because the bank carefully evaluates the solvency of each client. The fact that the bank does not give as much as we would like, at the first moment may cause some discontent, but after a month, when the time comes to pay the loan, you will understand how good it is that the amount was calculated based on your real capabilities. In addition, now banks have become much more flexible, offering to get consumer credit in a mobile application in just five minutes.
Beware of the traps!
Especially beware of offers of interest-free loans that are vigorously advertised before the holidays, when you so want to allow yourself more and treat yourself to something special! As a rule, these loans are interest-free only if they are returned on time. If this fails and the loan is extended, you need to reckon with large interest payments.
Form your own insurance fund
If possible, be sure to insure housing, health, and a car. But foreseeing absolutely everything, unfortunately, is impossible. In addition, there are things that simply wear out and from time to time you have to buy a new washing machine, dishwasher, pump ...
Therefore, saving 5-50 euros each month in your own savings fund, you can create an excellent financial “airbag” for unforeseen situations. It is safer to save money in a separate savings account, although a money box in a home safe might well be suitable for this.
It is more profitable to borrow for a shorter period
Despite the fact that taking a loan for a longer period, the monthly payment will be less, in reality, the total amount of debt will be less if the total repayment period is shorter!