With more and more lines of credit available and living expenses constantly on the rise, the amount of people applying for credit and borrowing money is steadily increasing. However, whilst some people borrow responsibly and only take on as much as they comfortably can pay back, others are greedier and don’t think about how they will meet repayments when borrowing – a situation which can lead to a whole lot of different issues. If you’re thinking of applying for a line of credit whether a bank loan, credit card, or even a mortgage or car finance, it’s crucial that you know the importance of responsible borrowing and how to ensure that you borrow money responsibly.
Before taking out any line of credit, it is important that you are one hundred percent sure that you will be able to afford to make the repayments in full and on time. Failing to do this can lead to further charges and arrears that you will need to pay, and missed payments also appear on your credit file, causing damage to your credit rating. Miss too many payments and your credit rating will fall into the ‘poor’ category, making it difficult for you to obtain further credit. If you are considering short term online loans, whether to cover an emergency expense or make a one-off purchase, ensuring that you will be able to make the repayment in full and on time is even more crucial. Payday loans are usually expected to be paid back in full and with interest on your next pay date, meaning that if you borrow too much, you could put yourself in a position where you don’t have enough money to live for the next month, and need to take out another one. Doing this each month will lead to a payday loan cycle, that can cost you dearly in the long run.
Looking After Your Credit Rating
Another reason why responsible borrowing is important is the effect that borrowing irresponsibly has on your credit file and credit rating. Defaults, missed payments and arrears stay on your credit file for a number of years, meaning that they can still have an effect on you financially even if you mature and become a more responsible borrower. This is why being responsible from the moment you first borrow money is crucial – there is often lasting consequences that can take a long time and a lot of hard work to fix. Whether you are applying for a bank loan, credit or store card, mortgage, car finance, payday loan, or even a mobile phone contract, it’s important that you take care of your credit rating by only borrowing as much as you can afford to pay back and ensuring that all repayments are made on time.
Charges and Costs
Borrowing irresponsibly can cost you dearly. If you take on more credit than you can comfortably pay back or overspend on a credit card putting you in a situation where you are unable to make repayment, lenders will often add on extra charges for missed payments and arrears, which you will then need to pay on top of the repayment that you have missed. If this occurs regularly, you will find yourself in a situation where the costs of the arrears and charges for missing payments are getting higher and higher, and getting your balance back in the clear can be something that costs you a lot of money that you wouldn’t have had to spend had you been responsible with your borrowing in the first place. When applying for lines of credit, create a list of your incomings and outgoings to ensure that you have enough room in your monthly budget to make repayments. If you don’t, don’t apply – it really isn’t worth it.
Worst Case Scenario
The worst case scenario for those who borrow money irresponsibly is that a bailiff or debt collection officer will visit their home and take belongings in order to cover the debt. Being unable to make any repayments can also lead to bankruptcy, which can cause borrowers to lose their homes, cars, and any other assets of worth in order to pay back the money that they owe. If you are thinking of borrowing money, avoid this situation by borrowing responsibly – don’t borrow more than you really need.