Borrowers should repay whatever is borrowed; in line with agreed terms and conditions. However, many Norwegians and Norwegian residents find this very hard or even impossible to fulfill this obligation.
For example, the household debt margin quite recently went up by an astonishing 8661 percent within a year. By the way, this is not a situation peculiar to Norway alone as many other sovereign states face similar economic issues. For more on this, you can visit: https://www.thebanker.com/.
Such scary stats have led to beliefs such as how securing a loan is a terrible idea. Well, this is not necessarily the case as there are some valid reasons for this practice. However, consumers need to understand how important it is for them to engage in responsible borrowing practices, which is why this article touches on this subject. So, read on to find out more.
Tips & Advice for Responsible Borrowing
There are times when you just cannot but borrow. Borrowing can even be the smartest decision at certain times. This is all to say that the problem is less of borrowing, but how you manage debts. Against this backdrop, discussed below are some tips and advice for responsible borrowing:
Compare Several Offers
A creditor offers a service just as a grocery seller offers a service by selling groceries. A creditor offers a financial/credit service.
Seeing things from this perspective ensures that you insist on getting this service from the very best. This is why you should not settle for just any creditor. In the spirit of making the ideal choice, you are strongly advised to compare several offers from several creditors.
This also calls for knowledge of how to properly compare several available options. To this end, your basis for comparison should include:
- Interest Rate – Pay attention to the effective interest rate and not just the nominal interest rate
- Repayment Periods
- Loan Fees
- Loan Amount
- Approval Time
- Additional Perks & Benefits
- Grace Periods
- Collateral Requirements – For secured loans
- Flexibility
- Penalties
- Credit Type
Paying attention to all these might seem like quite a lot. However, it is a crucial step in doing your due diligence.
Additionally, creditor reputation should play a huge role in your eventual choice of a loan offer. For this reason, do a good job of researching how the creditors that you are considering conduct their business operations. The objective here is to ensure that they represent the interests of their client, rather than being predatory lenders.
Use a Loan Broker
For the record, you can go about properly securing and managing a loan without the services of a loan broker. However, the truth is that you stand a greater chance if you use the services of a good one. Some of the reasons for this include the fact that these professionals help in the following ways:
- Sourcing for loan offers on time – Some people end up taking the wrong offers because they do not have enough time to search for the right ones. These brokers provide these offers on time
- Multiple offers – Ordinarily, they provide no fewer than 20 offers from several creditors
- Personalized Service – They analyze your credit state and needs. This information influences how and where offers are sourced from. This is besides the fact that they offer pertinent financial advice for your best interest
Using the services of these brokers is therefore advised in light of these and more. By the way, many of these services are free, so it is worth taking the shot.
Budgeting
Budgeting is about financial accountability. Furthermore, it is about accountability in a proactive manner. This implies that budgeting helps you avoid financial complications even before they arise.
It even reduces your need for loans as budgeting is also about making some tough but important decisions. For example, it helps you see the need to steer clear of making some purchases when your penger på dagen (Norwegian for “money at hand”) is not sufficient. It even makes you see reasons to avoid making some purchases when you can even afford them.
In other words, you only get to use these credit services when the need truly arises, rather than at any slight chance. Especially in the context of debt servicing, proper budgeting ensures that repayments are well managed. So, make sure to properly budget.
Read & Understand Loan Terms & Conditions
Never approve of loan terms and conditions without reading and understanding them. By the way, this matters regardless of the verbal agreement you have had with the creditor.
The reason is that what is enshrined in the terms and conditions that you consent to is what would be legally binding. Unfortunately, many predatory lenders take undue advantage of many people’s poor due diligence culture.
These lenders do this by making promising verbal statements when trying to win over prospective borrowers. Eventually, they tie these people to unfair terms and conditions.
For example, these lenders can choose to entice with a very low nominal interest rate but refuse to say anything about their high effective interest rate. Considering that the effective interest rate is the truer picture of the loan’s cost, consumers who fall for this trap will end up taking a very hard-to-service credit line.
However, this can only happen if a client does not read and understand the proposed terms and conditions. By the way, this is another good reason to work with a loan broker when searching for offers in the credit market.
Be Aware & Improve Your Credit Score
Your credit score is very important and should be seen as such. The reason is because it determines how you are perceived in the credit market. Here is a simple example to help you come to terms with what this means.
Borrower A and Borrower B secure loans of 200,000 Norwegian Kroner each from Bank1 at the same time. Both are expected to completely repay the debt in 2 years. Borrower A gets the loan at an effective interest rate of 11 percent, while Borrower B gets it at an effective interest rate of 8 percent.
This means that Borrower A would pay more than Borrower B despite borrowing the same amount at the same and repaying within the same time frame. The question is why?
More often than not, this would be because of their credit scores. Borrower B most likely has a better credit score than Borrower A. As a result, the creditor sees him as more creditworthy and is willing to offer better loan terms and conditions to him.
In other words, your chances of getting very borrower-friendly terms and conditions are increased when you have a high credit score. So, do well to improve your credit score before taking out a loan. This way, you would spend less servicing the loan.
For starters, you should know what your credit score is. Thereafter, you can work on maintaining it (if it is high enough) or improving it (if it is low). By the way, some tips for improving credit scores to stand a higher chance of getting borrower-friendly loan terms and conditions include the following:
- Prompt Payment of Bills
- Low Credit Utilization
- Credit Report Monitoring
- Debt Reduction
- Avoiding Negative Marks – Such as Bankruptcies, late payments, and collections
- Credit Diversification
- Patience
- Using a Secured Credit Card – If Necessary
- Building a Lengthy Credit History
- Debt Prioritization – Prioritize high-interest debts
These are all valid tips for improving your credit score. You can read this article for more on these tips and several others.
Conclusion
Five (5) tips for responsible borrowing have been shared here. However, there are a lot more tips than these, although these are very valid ones. However, these five are guaranteed to do a lot in steering you in the right direction.
So, take them seriously in your bid to avoid debt trouble. Furthermore, people in debt trouble can also engage them as this would increase their chances of eventually becoming debt-free.
