The trend of people rushing to credit facilities and other financial institutions is seemingly growing with every new day. People are continuously borrowing and it seems it will not stop anytime soon. From car loans, student loans, home loans and renovation loans to every other type of loan; all indications point out that the trend of borrowing is not slowing down anytime soon. However, there are dangers that are associated with borrowing. These five points summarize the dangers associated with borrowing.
1. High Interest Rates
When borrowing, you receive a sum of money called a principle. When repaying the principle, in most cases you will be charged an interest. The interest is a certain percentage of the principle that you will need to return together with the principle. This means that you have to repay more than you borrowed. Actually, it is the interest that makes borrowing an expensive business. This calls for a person to save and use their savings when in need of money than entering into a debt situation.
Borrowing greatly affects a person’s credit score. When borrowing and failing to repay the agreed amount within the terms and times agreed, one will negatively impact their credit score. However, if borrowing and repaying the amount as per the agreed terms and times, the credit score will be positively impacted. The credit score influences a person’s financial lifestyle. For instance, if one has a poor credit score, they may be denied renting an apartment, denied financing and loans or they may be charged more expensive interest later when they will borrow. One should work on improving their credit score. Check your credit score at credit.com
3. Strained Relationships
Borrowing from a friend or a relative can be cheaper and friendlier than borrowing from a credit facility or financial institution. However, if you fail to pay back the friend or relative as per to your agreement you will end up straining your relationship. It is proper to always have a written agreement when borrowing or lending money. When you feel that the borrowed amount cannot be repaid within the time you may have stated, it is proper that you explain and make effort to keep your promise. Do not avoid contact when you fail to pay otherwise you will lose your credibility to other friends and relatives and end up straining your relationships.
4. Feeling Stuck
Once you borrow money, you will always feel stuck until you fulfill the obligation of repaying the whole amount in full. It is important to ensure that you understand the terms of borrowing and work towards meeting all of them. Regardless of your change of plans, once you borrow the money you have to repay it to the last cent. Avoiding the repayment terms can portray you negatively to other lenders later when you will again need to borrow. Therefore, once you decide to borrow, ensure that you strategize on how to repay all your debts within the specified terms and timeframes regardless of how stuck you may feel
5. A Less Flexible Budget
When you borrow, you will lose the control you usually have over your budget. Depending on the amount you borrow and the terms with which you borrow, you budget will be more static than before you borrowed. There are things in your usual budget that you will have to forego until you you fully repay the borrowed amount. Consider increasing the repayment pace so you free yourself of the strict conditions of repaying the borrowed amount.
Before moving out to borrow, ensure that you fully understand the full implications of borrowing and that you can accommodate them into your lifestyle. Otherwise, consider other options because borrowing may get you tied up and disable your ability to be effectively productive.