It seems that more and more people have turned to digital loans in the Philippines for their emergency fund needs. Getting loans for all types of purposes like for homes, cars, college, house renovations, and even new business ventures is a great way to get rid of money problems concerning the listed expenses. Borrowing money is a significant solution to a short budget and even great when you need an immediate infusion of cash but still, you have plenty of considerations to factor in when you are borrowing money.
Check out some of the following risks associated with borrowing money that you should avoid.
High Interest Payments
Borrowing money obviously warrants you to pay the original or principal amount back, and in nearly all cases, you get to pay more than that. There will also be interest, meaning you will eventually pay for the lending service. You may even get a low rate, but most of the time interest rates makes borrowing money an expensive move. Rates change regularly so you might want to borrow money when there is favorable borrowing market. Usually, it would be better to use your own emergency fund than to succumb to high interest loans.
Borrowing money also means that you risk damaging your credit score if you do not stick with the repayment plan. Making on-time payments is a credit builder. Your credit score impacts many other aspects of your financial portfolio. It can affect your ability to get future loans, the rates you secure on those loans, and whether you can achieve your financial goal and more. It would be a good idea to take care and check your score every once and a while, work toward improving it!
Borrowing money from a family member or close friend may seem to be the quickest and risk-free way of earning fast cash. You may or may not more likely get a better deal from a friend or relative but take note that asking them for a loan can also lead to a number of awkward situations. It would be difficult for the lender to ask for your payment and you on the other hand, will feel a nagging sense of obligation to the other party.
While this method can help you secure a lower rate, it would be a good idea to have a clear set of rules and written agreement for the exchange, that way your relationship does not get too affected by your financial transaction.
Borrowing money from a lender will require you to sign an agreement and make a commitment to pay the certain amount of money in the agreed upon date. It would be important to pay your dues on time. This would mean that you have to continue payments until the balance is paid in full and with no excuses. Having this obligation can be a strain and it will put you on the pedestal in your creditors and potential investors in the future. Make sure that you can handle the life of the loan and not get stuck in the whole payment process of it all. Refinancing can be an option in some situations but take note that this won’t eliminate your debt, just restructure it.
Less Flexible Budget
Owing money to a lender will impart cash flow limitations on your future income. Your repayment period means that you are assigning a certain portion of your money to repaying your debt. The funds may seem essential at the time that you start your agreement on the loan, but the future has a risk of not agreeing with this favorably. You would be generously provided with a great deal of cash but if you are not careful with your spending habits, this would mean trouble. If you would take a loan, budget the minimum repayment amount into your expense record and check it regularly so that you would put an end to your cash flow limit.
This is why more and more people in the Philippines have digital loans as their backup plan because it poses less risks and it is quick to process. Be aware of the implications of borrowing money before you start and trust only the lending institutions who have worthwhile lending plans.