Borrowing money is as part of the human experience as eating food, drinking water, and going to sleep. Everybody, even the super-rich, need to do it at one point or another. If you are borrowing money because you need to make a large purchase, like a home or an automobile, or if you need emergency money to cover an unexpected expense, borrowing money should not make you feel embarrassed.
You should want to know some of the basics about borrowing money in order to make an informed decision about how much money you are going to borrow. You also want to think in advance about how you are going to repay the money.
Start by Honestly Determining the Amount of Money You Need to Borrow
Before you go to your friends, family, or to a lending institution looking to borrow money, you should know how much money you honestly need. Remember, if you are borrowing money, it is likely that you are going to have to pay back that money with interest, so you do not want to exaggerate your needs and borrow more money than is really necessary.
When determining the amount of money that you are going to need, look at all of the costs that are involved. For example, if you are looking to borrow money for purchasing a vehicle, ask yourself, will I have enough money to pay for things like gas, insurance, and any immediate repairs? If you can’t put gas in the vehicle or repair it when it breaks down, the vehicle is worthless. You want to make sure that you borrow enough to cover the purchase and any additional costs that the purchase or the investment is going to bring with it.
That being said, take as little as possible when your borrowing money. If you can pay for parts of the expense out-of-pocket, do so. The least amount of money you borrow now, the less money you will need to repay in the future.
Make a Plan for Paying Back the Money
Part of the reason why you may feel reluctant to borrow money, especially from friends or family, is because you do not want to feel like you are indebted to them. The best way to alleviate that uncomfortable feeling is to pay them back in a timely manner.
You should not leave it up to chance that you will be able to pay the money back. You have to have a payback plan. In order to create a payback plan, you need to look at your current expenses and your current income. Determine how much money you can realistically and consistently pay back on a monthly basis. You do not want to overestimate the amount of money that you promise to pay back. There is nothing worse than borrowing money from friends or family and then needing to explain to them why you are unable to pay back the loan in a timely fashion.
Explore All of Your Options before Deciding to Borrow Money from an Individual or Institution
You need to explore all your options before deciding where you are going to borrow money from. Realize that each lending option is going to bring with it some pros and cons. If you borrow money from family, they might be more lenient and understanding when it comes to you needing to pay the money back. At the same time, there are emotional attachments and frictions that may be created when you borrow money from family.
Research all the traditional ways people borrow money. Build your knowledge so you understand how long term loans work, how to borrow against your home and which online loan lenders are most reputable should you find yourself facing an unexpected emergency.
On the other hand, borrowing money from a lending institution is strictly business, you will have to pay interest, and there is no flexibility when it comes to when and how you pay the money back. If you don’t pay back family members, there may be strained relationships. If you do not pay back lending institutions, you may be at risk for damage to your credit history of future lending ability.