Personal Loans: Being a Responsible Borrower is Actually Easy
There are countless circumstances that motivate you to borrow money. Which includes paying for an unexpected bill, financing a major purchase, or even taking a well-deserved vacation. Whether you borrow from a bank via a personal loan or you choose a local lender that offers loans based on the value of your vehicle, you take on the responsibility of repaying the amount you borrowed.
When lenders see you have the qualities of a good borrower, you are more likely to have an opportunity to secure the financing you need at an affordable rate. Here are a few tips on how to be a responsible borrower no matter where you apply for your next loan.
Your responsibilities as a borrower
When you agree to borrow money from a lender, you enter into a legal contract. It’s your responsibility to ensure that you fully understand this contract before you sign it. Your signature tells the lender that you agree to meet your obligations by repaying the loan according to the contract.
Things to consider if you can’t make a loan payment
It can happen to anybody. So if you are unable to make a monthly payment, here’s what you should do:
- Contact the creditor immediately, before the payment due date. Your call demonstrates your good faith. Most creditors are willing to make alternative arrangements if your situation has changed.
- Don’t wait until the due date has passed or until the creditor calls you. Waiting puts you at a disadvantage when dealing with your creditor and that’s the last thing you want.
- Ask for a grace period. If it’s a one-time occurrence, your creditor may give you a grace period, allowing you time to get your financial affairs in order.
- Renegotiate your loan terms. If your situation has permanently changed, your creditor may extend the term of the loan. That will spread your payments over a longer period of time, giving you room to breathe each month and reduce your stress.
The consequences of ignoring your loan obligations
A loan is a legal obligation. If you fail to meet the terms of the loan agreement, your creditor has the right to take court action against you to recover the balance of the debt. This could happen in several ways.
- If the loan is secured by a chattel mortgage, the creditor is entitled to take possession of the property that you have signed over as security. The creditor can then sell the property and apply the proceeds against the outstanding balance of the loan.
- If there is no chattel mortgage on the loan, or if you did not pledge any assets as security, the creditor can obtain a court order. A court order grants access to other goods that you own, which similarly can be sold to compensate for the default.
- If your spouse or some other person co-signed your loan application, the creditor will usually transfer the demand for payment to that person.
- If you were the sole signer, your creditor may resort — again by court order — to garnisheeing your wages. This means that the money you owe to the creditor will be paid directly by your employer. Until the full amount of the debt is repaid, your earnings will no longer pass through your hands.
You can probably prevent these consequences by being proactive and taking the steps outlined above. If your financial difficulties are serious and you cannot resolve them yourself, then you should consider credit counseling. These services are available through your lending institution or through an independent agency.
Hence, the bigger issue is that we want everything now in a snap! We want new cars now, we want new homes now, we want the latest laptop or tablet now. When we want everything all at the same time, we tend to borrow more than we can afford.
You have to be your biggest advocate. You have to understand the numbers, the math, and the consequences. It is not the responsibility of any bank, credit card issuer, or personal loan shark to provide you with detailed information about how this might affect you personally. When you borrow money, you need the be the one responsible and making sure you can afford it.
Remember these questions in mind:
- Shouldn’t we be responsible borrowers?
- Shouldn’t we make sure that we understand the terms of each loan we take out?
- Shouldn’t we make sure we can afford what we borrow?
Only borrow what you can afford to pay back so settling your debts won’t give you a headache or even lead you to a worse financial trouble. Know your responsibilities as this could only be the way to achieve financial stability and freedom.
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