With times being tough as of late, more and more people are turning to their bank to get some extra funding, be it for expensive one-off purchases or just to try and reduce the financial pressure in their day-to-day lives. With so many people choosing to go down the borrowing route, it is important to know both the pros and cons of doing so.
The most immediate advantage of borrowing money from the bank is the speed at which you can make extravagant purchases. Cars, holidays and deposits on homes suddenly become much more achievable, with the cost then spread over a long period of time via monthly repayments to your lender.
With so many different banks available, all competing to gain customers, many people fail to realise they can often negotiate better interest rates than the ones they are originally quoted, leading to some very good deals.
If you refrained from ever borrowing money or using a credit card to make purchases but decide later in life that sourcing extra cash could be a good move, you may find it harder to be accepted. Many lenders will only accept people with a good credit rating and you can only establish a good credit rating if you have borrowed money and made sure to meet your repayment deadlines. There are also other situations where having built up a good credit rating can be of use, such as the hire of a car.
The average debt for an American with a credit card currently stands at $15,204. This – and any other debts from borrowing money – must be repaid no matter what, regardless of whether your financial situation improves or worsens from the time you borrow the money. If you fail to make repayments, you will face a substantial fine and your name will be marked with a poor credit history, making it hard to get businesses to trust you in the future.
Many people who borrowed money via a loan or credit card were unwittingly charged extra for Payment Protection Insurance (PPI); a policy designed to maintain repayments should the borrower become unable to work. It was however, mis-sold in forms that were unsuitable to the recipient, costing people thousands of dollars in unwanted charges. Luckily, help is available to claim the money back but many remain unaware of their entitlement to do so; continuing to pay for cover they do not want or need.
Simply opting to use your bank may sound the easiest option but that does not mean it is the best one. Other financial institutions and lenders can offer smaller rates of interest and loans that specialise in a certain area, meaning that shopping around can be better than just settling for what you know; your bank may not always have your best interests at heart.
Borrowing money can be a great fix for many people’s problems, be they short-term or long-term. It is important however, to always ensure you get the best deal and borrow in the manner that is right for you. You must be certain you will be able to meet the repayments before you accept any deals and end up crippled with debt you will be unable to pay off.