Good to think about when borrowing – 4 smart tips to keep in mind

Who doesn’t want to have some extra money in the account on a rainy day? Taking out a loan is both quick, easy and can be done by almost anyone. You can choose to take out a loan without UC and even borrow with payment notes. But taking out loans is not entirely without its risks and there are some things to consider before you go online in search of low interest rates.

1. Type of loan

1. Type of loan

Before deciding whether to take out a loan, you must first and foremost know what kind of loan you want to take. Different loans have different characteristics such as interest, length and size. To know what kind of loan to take, you need to have it clear to you what the loan is going for.

Consumer Lending

By far the most common loan. These loans usually range between USD 5000 – 350,000 over a maturity of up to 12 years. Private loans include car, motorcycle and boat loans. A private loan can be both with and without security. For example, car loans usually the car acts as the loan collateral, but often it is the borrower’s ability to pay that determines how great the collateral becomes. Private loans can be used for whatever you want, but because of its size and its interest rate, it can be good to use it only for important investments. Let’s say you have a water leak in the accommodation. A private loan for a renovation can be cheaper than leaving the leak and may get a water-damaged housing.

Instant loans

Quick loans, or sms loans, are as they sound; fast. Quick loans take you when you need a small amount of money, quickly. With a loan amount of about USD 500 – 40,000 and a maturity of up to just over 2 years, you can repay the loan. Because of its speed and not needing any collateral for the loan, fast loans have a higher interest rate than other types of loans. If you are unable to make your payments on time, the interest rate may also go up further. Quick loans should therefore only be taken on emergency occasions when you really need cash at the checkout fast.

Mortgage loans

A classic loan that almost every Swedish person takes at some point in his life. Mortgages are used, as the name implies, for housing. Mortgages can go up to 85% of the value of the property and have a loan period up to just over 10 years. Because your home is used as collateral, mortgages provide among the best interest rates on the market. Some banks have started with a mortgage ceiling, which means that you can only borrow up to a certain limit based on your annual income.

2. Interest

2. Interest

The interest rate is what you pay for your loan. If you take out a loan of USD 100,000 with an interest rate of 5.69% over 5 years, you must repay about USD 114 106. This means that you pay USD 14 106 for a loan of USD 100,000. As you can see above, there are several types of loans, all of which have different high interest rates. Loans with collateral as mortgages will always have lower interest rates than one without. When you take out a loan it may be good to not always take the first best thing you find. Waiting, comparing and counting on the various banks and lenders can be a good business and you can often negotiate a better interest rate. It also helps to have a good credit rating.

3. Maturity

3. Maturity

The maturity and interest rate go hand in hand. As a rule, a loan costs more because you have to pay the interest longer. The longer the term you choose to have on the loan, the more the loan costs. It is therefore important to balance how long you want to pay off the loan and how much interest you are okay with having. Remember that it is sometimes possible to renegotiate your loan afterwards.

4. Your finances

4. Your finances

Before applying for a loan, you should first take a look at your finances and whether it will be able to pay off a loan. The solution to your financial problems may simply be solved through proper budgeting and some smart savings. If you get a payment note on your loan, you may end up in a worse situation than the one you started in. By looking at your monthly and annual budget can help you understand how much you can borrow and for how long.