Taking out a loan is serious business; it’s definitely not something you can do willy-nilly. If this will be your first time applying for a loan, then all the more reason to get serious about it. If you don’t, there’s a pretty good chance that you’ll regret it later on.
Just to clarify, however, we’re not trying to talk you out of getting a loan. In fact, we love the idea of borrowing money and using it to one’s advantage. It’s important to note that not all debt is bad debt. Some types of debt are not debt at all – they’re leverage that can help you get to your desired outcome faster.
For example, given today’s housing market, it’s not very practical to purchase a residential property in cash – especially if your funds aren’t exactly unlimited. If you barely have just enough saved to buy you a simple, mid-range property, then buying that house in cash may not be the best option as there are other costs to consider when it comes to home relocation.
Mortgaging, in this case, would make more sense. You can put down a downpayment and apply the rest to bank financing. The advantage of doing this is it gives you enough cash leftover to use as leverage that can possibly supplement your income.
If you’re running a business, you can inject that cash into the business and rotate it for profit. If you’re working a 9-to-5, then this may give you the opportunity to start a side hustle. If you can think of other ways to repurpose this cash that can help you bring in more cash instead of simply paying off a house that won’t really generate you new income, then mortgaging the property becomes your leverage.
More so, if you happen to land incredibly competitive interest rates on that mortgage loan.
Not just mortgage loans, any type of loan can be used as leverage as long as you are planning to use the loan’s proceeds on something that will generate more money even with interests considered. Suppose you take out a loan at 5-8% interest per annum and use it for a business or investment that is projected to profit 10% at minimum, then you are looking at possibly bringing in 2-5% more of the initial loan amount, interest considered.
Again, debt is not evil. It’s not something to be scared of or run away from. It is, instead, something you need to educate yourself about so that you fully understand how you can use it to your advantage. Debt only becomes something “negative” if the debtor is not fully aware or does not completely understand how to use it as leverage. For instance, they don’t know how to work with interest rates.
That’s right. One of the biggest pitfalls of a loan borrower is failing to understand how loan interests work. So today, this is exactly what we’ll be talking about: how you can avoid spiraling into debt by thoroughly understanding how interest rates work and using it to your advantage.
It All Starts with Awareness
The more you know, the less likely you are to make mistakes – this is true when it comes to availing loan too. Everything starts with proper financial education. You have to understand how loans generally work, before you go apply for one yourself. You must figure out the basics, from interest rates, add-on rates, finance charges, minimum payment dues, and everything else involved in a loan contract. The more well-versed you are with the terms and the processes involved in loan applications, the less likely it is for you to misstep and make costly mistakes.
Don’t Skip the Fine Print
If you feel that you are ready and you know you’re responsible enough to apply for a loan from a bank or lending company, make sure that you have space and time to do the tedious work. This includes being thorough and attentive throughout your application process, reading all the terms and conditions of the loan contract, and making sure that you fully understand the repercussions or risks involved should you miss a payment or default on the loan completely.
A lot of people spiral into debt because they did not take the time to read the fine print. We know that most loan contracts are long and extensive and sure enough, they can be an absolute pain to deal with. However, it would be a much bigger pain later on if you end up suffering the consequences of not reading the entire contract. You should take note of important dates, how hefty the penalties are should you miss a payment, and other variables that could affect you during the repayment period.
Use A Reliable Loan Calculator
Next, never apply for a loan without assessing your ability to pay it back. You can easily do this by running quick numbers on a reliable loan calculator. Doing so will give you a projection of how much you will be paying monthly based on the type, amount, and tenure of the loan you want to avail. Furthermore, online loan calculators often have information regarding the average interest rates of some of the biggest banks and lending companies in Norway which can more accurately help you project how much your monthly installments are, interests included.
To use a forbrukslån kalkulator, simply select the type of loan that you are looking to avail (e.g. mortgage, business, personal, etc.), how big the loan is going to be, and how long you intend to pay it back (usually a minimum of 12 and a maximum of 60 months). The loan calculator will then run a quick computation in a matter of seconds to show you how much your projected amortization would be, including interest. This should help you determine whether you can pay the monthly installments with your net income (after deducting your personal living expenses).
Assume The (Worst) Risks
While it is important to maintain a positive disposition in life, there are times when assuming the worst can actually put you in an advantageous position – as in the case of loans.
Try to assume the worst possible risks or scenarios that can happen during the repayment period of your loan. For instance, losing your main or biggest income source. If you do happen to end up in a situation where you’ve lost a huge chunk of your income, do you have other income sources that can help you sustain your monthly payments for the loan? If not, do you have any plans to establish another source of income soon? Or is the loan you’re taking out going to be used for that purpose?
If you plan around the biggest risks, it’ll be easier for you to work the situation out should it really happen in the future. That’s why, in this case, being cautious and assuming the worst can work to your advantage.