Ideally, we would always be able to pay cash for everything, and never have to borrow money. Borrowing means you pay interest on your purchases, which essentially means you’re paying a higher price for everything that you buy on credit. On the other hand, there are times when borrowing is necessary, and you can even leverage certain tax advantages (such as deducting your mortgage interest on your tax return). Debt isn’t always bad; it’s how we access and use it that matters.
So having said that, how can you borrow money the smart way? Use these tips next time you need to apply for a loan.
Apply for loans online. When you apply online, you can access many more lenders than those available in your immediate geographical area. Applying for loans online might mean that you can access a wider range of repayment terms, rates, and fees. However, you might have less room to negotiate.
Apply at local credit unions. Whereas banks operate on a profit basis, not-for-profit credit unions are designed to serve their members. If you have a good credit score and maintain a membership at a local credit union, you might be able to access loans with lower interest rates and fees than at traditional banks.
Maintain a personal line of credit. A personal line of credit, at a bank or credit union, works similarly to a credit card and can be used for smaller, short-term loans. But in contrast to a credit card, personal lines of credit usually carry lower interest rates.
Apply for a 0 percent, introductory rate card. Many credit cards run promotions with 0 percent, introductory rates for specified periods of time (usually 6 to 21 months). These offers can provide a great way to finance purchases at 0 percent, assuming you can repay the balance in the specified time period. But do be aware that when interest does begin to accrue, it is often quite a high rate.
Always fully research any loan offer before signing on the bottom line, and check with the Consumer Financial Protection Bureau if you’re unfamiliar with a particular lending institution. A little bit of legwork upfront can save you a lot of money in the long run. And if you’re considering new debt, remember to consult with us first. We can help you determine how this decision fits into your overall, long term financial plan.