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To borrow or not to borrow

Posted: 16 Nov 2015

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Should you or shouldn't you?

For weeks you have been driving past the car dealership looking at that brand new car. You have seen all the ads and friends have been talking about the great features it has. Everything is pointing you in the direction of making the purchase, except for one thing: You need to decide if it’s worth borrowing money for.

Before you borrow, you need to ask yourself the following questions:

  • What am I borrowing for?
  • Is borrowing really the best way to pay for it?
  • Can I really afford it, in terms of monthly repayments?
  • Is now the right time to borrow?
  • How stable is my job?
The risks involved with taking any type of credit (such as a vehicle loan) should make you think carefully about when and how much to borrow. While credit can open new doors, you need to know when borrowing is a wise decision. The exact cost of credit will depend on the type of credit or loan you take on. This will also be determined by who you borrow from and how long you take to pay it back. Who you borrow from matters a great deal. It is better not to borrow money from an unregistered lender that may not comply with the law (the National Credit Act requires all credit providers, even mico-lenders to register with them). You should also check your credit profile first by getting a copy of your credit report before even approaching any credit providers. Your report might tell you if there are some problems that you need to fix before going out and allowing your creditors to scrutinise your situation. Having a negative credit report might have an impact on your negotiations with credit providers. You should always have all the information available before taking the next step.

What you need to know before borrowing:

  • The amount of your loan repayment, including principal, interest and fees.
  • The sources of income and or savings you have to make those repayments.

Follow these steps to ensure you are making the right decision:

Step 1: Look at your budget and determine if you can afford to take credit at this point in time. Evaluate how much money you have available each month for credit repayments. Step 2: Shop around for the best deal. Compare credit products and determine which one suits your needs best. Do not be tempted to take on more credit than you need. Step 3: Look at any hidden costs and check all fees and charges … always read the small print! Step 4: Ensure that the credit provider you have chosen is reputable and registered. This is important because it means they comply with the law which will respect and protect your rights as a consumer. Step 5: Once you have chosen a credit provider, go back to your budget and see if you can afford the monthly instalment shown on the quotation. Make sure you do have at least the equivalent of an instalment or three saved for emergencies.

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