Tips on borrowing
How Do I Borrow Foolishly?
For an event that is non-income generating – e.g. wedding, vacation, birthday celebration, attending parties etc. – money borrowed for these events are not good debt. After the occasion has passed, you’re left with a burden that can weigh on you not only financially but emotionally and in other ways.
To Bury the Dead – borrowing for funerals is literally burying you in debt. Get a Family Indemnity Plan.
Don’t Read the Fine Print – Don’t tell the lender how much you can pay monthly. Ask about the interest rates, the duration of the loan, reducing balance or straight line interest, early payoff penalty, renegotiation of rate, etc.
Take Cash from your credit card – this results in automatic interest. It is better to use your credit card for a purchase you had planned to make in cash, then repurpose that cash for something else.
Borrow from Loan Sharks – interest rates are normally quoted as daily rates and sound attractive but when converted to annual, they are a rip off.
How Do I Borrow Smartly?
Secure the Loan with Cash – this type of security guarantees the lowest interest rate.
Have equity in the item being purchased – pay down the cost of the item as much as you can and borrow the rest
Borrow to buy items that appreciate at a faster rate than the interest on the loan – Purchasing a home – the value of the house increases exponentially and can be sold over time if necessary to pay off the loan.
Take Loans that are insured – If the loan is used to purchase an item that becomes damaged or destroyed then the insurance will replace or restore the item. If you become ill and there is a life insurance component, you will be able to benefit from that and have little or no need to touch your savings/cash.
Use your credit cards for every purchase – this helps your credit score. Better credit scores equal better interest rates on loans.