It seems like a simple matter to know how much you need to borrow. But the fact is few people get that calculation right the first time. If you don’t. You might not get a chance to return to the lending well. No matter how good your credit happens to be, no lender wants to see you back in their office right after giving you a loan. It makes them nervous. Their suspicion is that you are not as responsible as they thought you were, or that your money problem was worse than you thought.
When it comes to knowing how much to borrow, a cash advance loan is no different from any other. It might seem like a simpler proposition because you generally have a hard limit and you are in the throes of an emergency. Many people just max out the limit without realizing they are borrowing too much. With other loans, they often borrow too little out of concern for overextending themselves. It can be costly to make a mistake with your loan amount. Here are a few tips for getting it right the first time:
Don’t Get Greedy
When you are calculating a potential home loan, it is easy to let your emotions take over and convince you that you don’t just need a house; you need a dream house. That is a bad time to start dreaming. With every additional home feature you rationalize, your mortgage can increase precipitously.
You really don’t need the pool, or the additional $500 a month it will add to your bill. You might well be able to get a half-million dollar home loan. But does that really make sense when a $300,000 loan would be more than enough with just a handful of compromises. Self-discipline is possibly the greatest virtue when asking for a loan.
Get a Little More Than You Think You Need
On the other hand, self-discipline is not the same as timidity. Some people lowball the amount they really need because they are afraid to make the big ask. If you are going for a business loan, you are going to have everything accounted for to the penny. Don’t ask for that amount. Ask for more. You need enough to have a cushion for the emergencies and contingencies you never considered.
You naturally borrowed enough money to have a POS installed. But you only sprung for the basic package. Too late, you realize that you can’t take all the popular digital payment options. Getting that will cost you an extra $500. That sort of thing is exactly why you have to build in a reasonable cushion. Ask for too little and your opportunity cost might be too high.
Borrow Enough to Get the Job Done
Don’t borrow enough to only pay off most of your high-interest loans. If you are going to borrow for the purposes of debt relief, make sure you can pay off your entire debt load. Trading a high-interest payment for a lower one is smart money. You will also see some marked improvements in your credit score.
If you need a car, get one that will suit all your needs. If you need a work computer, get one that ticks all the boxes. If you don’t, you will end up with a loan, plus a piece of equipment that leaves you needing more.
Buy Quality Goods
Don’t use an expensive loan to buy cheap products. You will have the worst of all possible worlds. You don’t need a loan to buy something cheap. You can save up for that. Use the loan for that which you couldn’t otherwise buy. When your products are of good quality, you don’t have to worry about replacing them anytime soon. You will not need another emergency loan to replace yet another garbage product. Buy products that will far outlast the terms of the loan you used to get them in the first place.
There are no courses in school that teach students how to borrow money wisely. Borrowing is a reality that we all have to eventually face. Make your first loan a good one by not being greedy, not being too timid, borrowing enough to complete the job, and borrowing what it takes to procure quality goods.