Tips for Responsible Borrowing: Common Pitfalls to Avoid

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   Imagine setting off on a road trip without a map. You might encounter unexpected roadblocks, detours, and bumps that could have been avoided with a little planning. Similarly, taking on a loan without understanding common pitfalls can lead to financial stress down the line. So, let's look at common mistakes and how you can steer clear of them.

Overborrowing

Just because you qualify for a large loan doesn't mean taking on the maximum amount is always a good idea. Make sure you consider your overall financial circumstances and how the repayments will fit into your budget. It’s important to be realistic when assessing your goals and borrow only what you need. You can use our Loan Repayment Calculator to run your numbers. 

Ignoring the fine print

It can be tempting to skip over the fine print and head straight to signing the loan agreement. However, this could mean missing important information about interest rates, fees, penalties, and your rights and obligations as a borrower. Be sure to read and understand all the terms and conditions before agreeing to a loan. And if there's something you don't understand, don't hesitate to ask your lender – or us! – for clarification.

Not exploring your options

Each lender offers different loan solutions, interest rates, and terms. Take the time to compare these factors, looking beyond just the interest rate. For example, consider the repayment term, fees, and any special conditions or features. And of course, we can do some of the legwork for you – just fill in the form here and we’ll work with you to find a loan that suits your needs and goals. 

Missing payments

Life can be busy and more than a tad complicated at times. But, it’s crucial to pay your debts on time every time, as missing loan repayments can negatively impact your credit score and result in late fees and penalties being charged to you. 

If you often find that you forget deadlines, you may want to set up automatic payments or reminders. And if you’re unable to make a payment for any reason, make sure you reach out to your lender as soon as possible to discuss your options. 

Not considering the long term

People often focus on choosing the lowest interest rate they are offered and don’t think too much about the Big Picture. When considering a loan, make sure you consider how it fits into your long-term financial plans. 

For example, the lowest monthly payments can be good for your short-term budget, but if the loan term is long, you may pay more than necessary in overall interest costs over time. On the other hand, you can choose a shorter term if large monthly payments are manageable in your current situation – but what happens if you encounter unexpected expenses or income changes? Do you have an emergency fund to tap into?

The key thing is to ensure that your loan doesn’t just suit your present circumstances, but is also a good fit for your future financial stability.

The bottom line

Being a responsible borrower means understanding the common pitfalls of obtaining a loan and taking steps to avoid them. By keeping these tips in mind, you can navigate your loan journey with more confidence, ensuring a smoother ride to achieving your financial goals.

Here at better™, we’re all about responsible lending and borrowing. Whether you're looking for vehicle finance, debt consolidation, or personal loans, we're here to help. 

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion, and seek independent guidance.