A very common question for those who need extra money is: How much is a loan really worth? Believe me: you need to assess whether a loan is the best option for what you need.
So take the time to learn how to make a loan without creating a new debt that you will not be able to repay.
When is the loan really worth it?
To know when a loan is really worthwhile, you need to consider a few factors. The first and most relevant is to have a clear reason for using the money (learn how to assess the need for a personal loan). The second, but not least, is to know which is the best option.
Very simply, just remember that a loan is a debt that will be returned with interest. So, the lower the amount owed, the more advantageous the loan is. But not only that! See other reasons below.
When you have more expensive debt
Here you don’t even have to do a lot of math. If you have a debt with higher interest, it is worth taking out a loan to pay it off. In practice, this means that you will be exchanging a more expensive debt for a cheaper one.
To understand if the exchange is really advantageous, it is necessary to compare the Total Effective Cost or CET. This amount includes all the costs of a loan.
Yes, contrary to what many think, the interest rate is not the only important factor. And when used to compare different modalities, it can lead to a wrong decision. The lowest interest rate will not always have the lowest CET.
When you have an emergency
The ideal is to use credit when it is really necessary. And, many times, this need arises due to an emergency. In these cases, it is worth researching all available lines. The care is not to be easily convinced by some pre-approved modalities, such as overdraft.
Overdraft is one of the lines of credit that has more expensive interest rates. Therefore, the easiest loan is not always the cheapest.
Another tip is to request only the necessary amount. This way, you will not overpay and still have credit again when you need it.
When you need to clear your name
But are there lines of credit for negatives? Yes, the payroll loan is an example. However, you must be careful not to fall into scams or loan sharks.
Another important point is that, the amount requested should be just what is necessary to settle debts and clear your name. That is, the money borrowed must be used for this purpose. Otherwise, debts can turn into a big snowball.
Now understand how to identify when a loan is really not worth it.
When the loan is not worth it
Is a loan always the best solution for all cases? No, not always. And more than that, if the loan option is being used frequently, perhaps the biggest problem is not a lack of money.
In this case, it may be the mismanagement of resources. And if the problem is this, take the time to read the 4 proven tips to control your finances.
When the CET is higher than the original debt
The account is simple. If a new debt will be much larger than the current debt, then it is worth renegotiating with the creditor in which the debt is open. Exchanging a debt just to exchange it makes no sense. Worse, it can easily lead to debt.
Make this assessment. Consider negotiating open debt and check the payment terms. If necessary, also make a loan simulation to compare. Which installment fits in your pocket, without hurting your budget any longer?
When portability is an alternative
Did you know that you can sell your debt to a bank? This is only possible, of course, if we are talking about a loan. In practice, portability allows you to take the debt to a bank where the account is smaller. But is that even possible?
Yes, considering that interest rates vary from one bank to another, the amount taken may have different sums, precisely due to the CET.
When there is no minimum planning
To assume the debt you need to have a minimum planning. First, because the debt portion must be considered in the budget to find out if it actually fits in the pocket. Booking this amount is also essential to not have to pay more interest or become in default.
Some modalities are automatically deducted from the payroll, such as the payroll loan. Others can be placed on automatic debit. These are simple measures that can facilitate the payment of installments.
Now that you know when a loan is really worth it, you can make the best choice. Remember: knowing how to use credit consciously, you can have numerous benefits.
How to make your money work for you?
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Do you want to accelerate the achievement of your financial freedom? So click here and learn how to make your money work for you now!