Smart borrowing - make your loan work for you
Need a loan? Loans can offer financial relief in the case of emergency. However, if used irresponsibly, you could end up in a financial disaster. Similarly, if used responsibly, it could serve as a tool to gain financial wellness. Consider these guidelines before you put in that loan application so that you can make the most of your borrowing.
Before you get a loan
Before applying for a loan, it is a good idea to assess why you need the loan and when comparing the different types of loans, also understand how they work.
Loans make the most sense when used as an investment in your future — like buying a house or paying for school fees. Before you get one, consider these three questions:
- Why do you need a loan?
- How will you repay it?
- What are the interest costs?
Get a loan that you can comfortably repay and that won’t prevent you from doing other important things (like saving for retirement). Figure out how much of your income will go towards your loan repayments and borrow less if you don’t like what you see.
Good debt vs bad debt
When it comes to applying for a personal loan, a home loan or vehicle finance, consider the kind of debt you’re signing up for. This is where the concept of good debt vs bad debt comes into play. Good debt pays for things that provide long-term value and bad debt is usually associated with impulse purchases.
How to make it work for you
- Build a good credit profile
One of the best ways to improve your credit score is through a loan. This doesn’t mean your score automatically increases because you got a loan. Rather, it’s a combination of the type of loan you get, as well as how well you pay and manage that loan. Your credit profile is built with good habits. If you practise these 3 habits, your loan can work in your favour to help you improve your creditworthiness.
- Pay on time, consistently for the full term of your loan
- Never exceed 30% of your credit limit
- Avoid having too many loans
- Debt relief
If you’re struggling to pay your debts monthly, there’s a loan that can work for you. Getting a consolidation loan can help you combine several loans into one easy-to-manage payment. An African Bank Consolidation Loan can be used as a stepping stone to a better financial future. This will help you to reduce your total cost of credit and also free up cash flow that you can use to either save or pay more towards other debts.
But, like any loan, this option also requires commitment and discipline because you need to make sure you pay on time to avoid a negative record on your credit report.
Loans can meet the most urgent financial need and sometimes it makes sense to borrow money for things that will improve your life over the long-term. But loans can also cause problems – especially if you’re over indebted. So make sure you understand loans, why you’re getting one and if you can afford it. This will help make sure that you borrow smart and can make your loan work for you.