Nearly everyone needs to borrow money at some point. You may need a loan for a car or a loan to cover an unexpected expense. Borrowing can be a very stressful process for people who have a poor credit history. Finding a lender who will let you borrow at reasonable terms can be difficult.
Create a plan
If you need to borrow money for some reason, you need to create a plan. Start with your own personal budget. If you don’t create a monthly budget for yourself, this is a great time to start the process.
Budgeting before you borrow money is important, because you need to know how much you can afford as a loan payment. There’s no point in signing a loan agreement if you can’t make the payments.
Putting together a budget
To budget, start with your monthly after-tax income. Get out a piece of paper, and write that amount at the top of the page. Next, deduct all your fixed expenses. Those are amounts that you know about each month, such as your lease payment on an apartment, or your insurance premiums. Say, for example, that you monthly after-tax income is $4,000 and that your monthly fixed expenses total $2,500.
Next, deduct your variable expenses from the remaining $2,500. Variable costs include your utility bills and gas for your car. Your variable costs also include food and entertainment.
At this point, you need to make sure that your loan repayment amount can fit in your budget. Fortunately, there are some great tools you can use to compute the loan amount.
Your loan repayment amount
Assume that you need to borrow $3,000 for an expensive car repair. You are able to find a 6% loan for 2 years. Most loans include amortization, which means that the loan balance is repaid gradually over time. Each of your loan payments includes some repayment of principal (the original amount borrowed).
Several sites including Bankrate or Credit Karma among others provide a tool you can use to figure out your monthly payments for the $3,000 repair loan. In this case, the monthly payment is $133, according to the website tool. Make sure that the $133 can fit into the budget you’ve created.
Considering a lender
When you think of borrowing, the first type of lender you may think of is a traditional bank. If you have a low credit rating, however, a traditional bank may not approve a loan for you. Fine Tune Finances points out that people with bad credit should consider alternative lenders. These companies work with individuals who have poor credit histories.
As the MaxLend Loan LinkedIn profile explains, people who need funds have a variety of borrowing options. An alternative (private) lender can quickly analyze your credit situation and get a loan approved. For example, Max Lend can deliver up to $1,250 in a borrower’s bank account in minutes.
Improving your credit rating
Smart borrowers can use a loan to improve their credit rating. Your credit rating is calculated based on several factors, including timely repayment of principal and interest.
If the loan amount fits into your budget, you’ll consistently make your payments on time. Those payments will improve your credit score. A better credit rating will help your borrow at reasonable interest rates in the future.
Use these tools to borrow the funds you need and improve your credit score. Over time, a better credit score will make borrowing easier and less expensive.
Often when the bills are up and money has become tight I usually go to a couple of hard money lenders for help with the permission of my wife. The both of us check to see how much money to borrow from them as well as how long it will take us to repay. It’s something that we do as a couple and also we do try to be careful of how much time we have to repay.
Putting together a budget and including your loan repayment plan is a great way to borrow money and have it payed off in a timely manor. Thanks for the great advice!