There are several reasons that people often borrow more money than they need. A common reason is that, as they’re already borrowing money they don’t have, then why not borrow a little more? Another reason is that they haven’t properly budgeted and so aren’t quite sure of how much they need exactly.
Another reason – and perhaps the most common reason – is that a lot of creditors will only offer large loans. This is where you need to be careful, because there are creditors are that will try to get you into more debt than you need to be in. This is especially true of banks. This is because loans ultimately pay off really well for those in the financial sector. You can read more about this over at http://positivemoney.org/how-money-works/proof-that-banks-create-money/; it’s essential reading if you want to better understand the business of lending.
Of course, if you need a big loan, then you should go for it. If you’re confident you’ll be able to pay that all back, then it would seem like there’s not a reason not to. But should you really aim to borrow as much as possible, or simply get as close to the amount that you actually need? Let’s say you need $20,000. The lender you’ve gone to offers a minimum of $30,000. Should you take that offer, or look elsewhere?
The problem with taking more than you need is that you’ll be hit with a higher interest rate. And if you’re looking to borrow money for any purpose, then it’s essential that you get to grips with these sorts of rates. If you’re looking to buy a house, for example, then you should check out https://www.spencersavings.com/loans/mortgages/todays-mortgage-rates/ so you can see what mortgage rates are looking like right now. Rushing to borrow more than you need may result in a much higher expense in the long run and the short term than you’d anticipated. The repayments of larger may do more damage than good to your finances.
If you just need a small amount, then it’s worth asking yourself if you really do need a loan after all. It depends what you’re using the money for? If it’s a luxurious item, such as a new computer or a vacation, then perhaps you should reconsider. Are you sure you can’t hold out until you’ve raised the money yourself?
Perhaps the most obvious piece of advice you can get when it comes to loans is to ensure that you have a stable source of income. Of course, an income is generally a requirement to take out any loan; if employment isn’t required, then you may want to think twice before working with that particular lender. You need to ensure you’re making enough money every month to offset the interest rates of a loan, especially if you’re borrowing a little more than you need.
You also need to keep in mind the possibility of losing your job. You can read more about such a scenario at http://www.nolo.com/legal-encyclopedia/i-lost-job-can-i-help-mortgage.html. It’s not a pleasant thought, but you must keep such a possibility in mind as it would be extremely difficult to make the necessary repayments without that income.