A loan is often essential to meet needs that you cannot pay at a specific time. However, if you are not careful, you will affect your personal finances. So that this does not happen, we share some things that you should take into account before requesting a loan.
1. The payment of your debts should not exceed 20% of your income
Before thinking about how much you are going to borrow, you have to know your ability to pay. That is to say, how much can you pay out of your fortnight , without compromising your essential expenses for food, water, gas, electricity, tuition, transportation, in short, all the money you need to survive in a month.
Experts in personal finance recommend allocating around 20% of your monthly income to pay all your debts.
For example, if you earn 15 thousand pesos a month, you should allocate paying only 3 thousand pesos in debts (personal loan, mortgage, credit card, the payment of what your mother lent you, etc.).
However, it is best to prepare a budget of all your monthly expenses, perhaps, the percentage with which you can borrow may be less or a little higher.
To make it easier to budget and know exactly how much you have left over from your income after subtracting your essential expenses, use this calculator .
2. A credit according to your needs can be cheaper
Usually, specialized loans are cheaper, since financial institutions have tangible backing. For example, a mortgage loan is much cheaper than a personal loan, because the bank has its own home as collateral and the same happens in the case of a car loan.
So, identify what your need is and, if there is adequate credit for you, in this way you will not pay unnecessary interest.
3. The CAT will tell you the cost of your credit, check it!
The first thing you should look at when requesting a loan is the CAT (Total Annual Cost). This indicator considers the interest rate and the loan fees. That is, it tells you how much the credit is going to cost per year.
For example, some credit cards are very expensive because they charge fees such as the annuity and high interest rates. The CAT of a mortgage loan includes administration fees and some charges such as life insurance or home insurance, if you do not have them. The CAT will be in accordance with the characteristics of each loan.
Now, a low interest rate is the most important thing to get a cheap loan, but it will be of little use, if you have to pay thousands of other commissions. Hence, it is very important that you review the CAT before signing a contract. In addition, knowing this indicator will be useful to compare different options.
Query: Everything they don't tell you about CAT.
3. Compare costs on fintech platforms
As we said before, it is better to look for a loan to suit you and a good option is fintech platforms , that is, financial institutions that work online, lowering the costs of maintaining a physical branch, consequently, their interest rates are more competitive and, also, they are accessible if you do not have a credit history or are in the credit bureau.
These online financial institutions also specialize in personal, home, and business loans. Therefore, try to compare at least three options, either from the fintech sector or the traditional one.
5. Gather the necessary documentation
For certain credits, it will be necessary for you to submit documentation proving the expense you will make or have already made, such as the car bill, purchase of material to improve or repair your house, etc.
Especially from your income, to see if you can really pay. If you are an entrepreneur or freelancer , collect income invoices, even your annual statement can be a great instrument to verify income.
6. Being a totalero, helps you ask for better credits
In general, financial institutions trust more in people who have used other credits in a total way, that is, they pay their total credits on time. So, if you have had other credits and, obviously, you made the payments on time, you will have the opportunity to get a higher credit, with a better interest rate.
7. Ask for only what is necessary
As you should know, loans involve the payment of interest. So, request only what is essential to make your expenses. Not because you can pay 3,000 pesos a month does it mean that you are going to request a loan in which you have to pay that amount monthly.
Think that you may have an unforeseen event and need that money to solve it, so if you have a loan and ask for another, you will get into more debt. Try to have an emergency fund for any eventuality.
It may interest you: Emergency fund: your most important money reserve .
8. Beware of loans "drop by drop"
Never rush to take out a loan without giving a little thought to all of the above, although the financial pressure can be very strong, there is always a solution. While it will come at a cost, with a little time you can take the least expensive option.
There are scams by people who identify this need and take advantage of it. For example, drop drop loans consist of the following:
Express cash loans, without collateral, without reviewing the credit bureau to small merchants.
They have supposedly low interest, of 10 or 20% per month and others of 1 or 3% daily. This is a lot, the loans in Fintech have an interest rate of a maximum of 30% per year (2.5% per month!) Therefore, those who request the loan acquire an unpayable debt. In the end, fraudsters steal merchandise from merchants and threats arise.
So it is better to compare options using the CAT and research the different options on the market.
9. Advance your payments
If you ask for a loan, try to pay as soon as possible to lower the interest. Remember that interest is generally calculated based on what you owe.
For example, if you owe 30 thousand pesos, the interest is 2% and the first monthly payment is 2,500, you will pay 600 interest, but in the next payment you will not have to pay 600 interest, because now you only owe 27 thousand 500 pesos , and you will pay 550 interest; 50 pesos less and so on.
Therefore, try to advance your payment as soon as possible to the so-called capital, that is, the amount of money you asked for without counting interest.
Also verify that they do not charge you commissions for paying before.
10. Pay in a timely manner
A rule of thumb when borrowing is full and timely repayment. If you make a small payment before the payment date, it will work but then they will charge you interest and it will take you longer to pay.
Delaying a day can earn you a horrible commission. Just because of an oversight, not even because you don't have the money, but because you forgot or were late. In addition to making unnecessary expenses, this will be reflected in your credit history and you will have less opportunity to obtain better credits in the future.
Our recommendation is that you pay at least two or three days before, so that you are calmer.
We hope that all this information helps you better manage a loan, since as we mentioned at the beginning, it serves to meet needs at the time that is most useful. Do not think that it is bad to ask for a loan, rather you should take care that it is below your ability to pay and that it is as cheap as possible, in order to keep your finances healthy.