We live in a very consumer society and it is almost impossible for citizens to cope with too many expenses. Besides, global financial crisis have had harmful effects to their pockets, especially during the last years. Thus, for many of them, borrowing money has come to be the way to escape from their hard economical situation.
These aspects, along with the fact of not having enough capital, can easily turn in a country with a population that cannot spend or repair with ease. Hence, lenders see in your needs an excellent opportunity to make their businesses and borrow you the money to pay everything you buy. But, are you really able to repay the money they lend you?
Although borrowing is not a bad solution to avoid financial difficulties, you should think carefully how and why it is very important to calculate if you have an appropriate borrowing capacity before for asking a bank loan.
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Pay attention to the following remarks and relate them to your finances before going to the rescue of bank lenders. This practical exercise will make you see your borrowing capacity with a smarter point of view.
1. How much do you need? Once you understand that your fix consists on a bank loan, the very first question you have to ask yourself is how much money you need. Some people ask for more than their needs because they do not make estimations. As a result, and mainly due to unnecessary interests, it increases their risk of getting into new debts, loss of creditworthiness, bankruptcy, etc. But if you have a good handle, then the money that you borrow will work perfectly according to your personal needs.
2. Think about your cash flow. Cash flow indicates how much money you have. A very good cash flow projection will show how much money do you receive every month, how much you spend and how much you require to your debts. Thereby, by knowing your personal cash flow, you will see if you are in a position to repay the loan, what modifications you have to apply to your expenses, what you can possibly do to increase your personal revenue, etc. Asking for an amount related to your cash flow will avoid you unpleasant bank calls and allow you to take a calmly breath, whereas your finances keep on the right track.
“Lenders see in your needs an excellent opportunity to make their businesses and lend you the money to pay everything you buy. But, are you really able to repay the money they lend you?”
3. Examine the interest rates. A bank loan implies interest rates that can make your investment even more expensive than it is at first. Thus, as part of calculating your borrowing capacity, it is also wise to ask your lender what is going to be the interest rate for your loan. Therefore, you have to relate your personal revenue and your expenses in a way that the interest rates that you are going to pay does not affect your economical stability. So, what are the interest rates offered by the lender and which one is best for you? Since interest rates tend to fluctuate from time to time, is there any possibility of a rate lock? Experts recommend that interests should not exceed your personal net income, which does not include your expenses, additional loans, etc. These observations help you to know what your disposable is.
Also, know that interest rates vary from state to state. You may meet a local attorney or accountant and ask him the estimated rates valid in your State. Not knowing Usury laws can worsen things for you. Keep in mind that a bank loan must help you to pay what you can, instead of getting you into more debts. This is why calculating a convenient interest rate is so important for a smart borrower.
4. Loan terms. Calculating your borrowing capacity implies collateral or security loan as well. For example, if you cannot meet the terms described in the loan, you are at risk of losing significant assets. For that reason, care must be taken and see what assets you can lose in case you fail to pay it off successfully. Are you able to pay the loan during the time you are going to agreed with your lender? Is your house at risk?
You should not miss any detail about payment schedules as part of your loan terms either. How much can you afford to repay? How often? Can you afford monthly, quarterly or weekly payments? Are these aspects considered according to your borrowing capacity? We tend not to think on failure, but evaluating the possibility of being unable to pay it off will avoid additional problems. Do not spoil the future of your family! So, before signing any paperwork, revise loan terms as well!
5. Credit counseling. Sometimes we cannot solve things by our own, so we may need a hand to go ahead. If you still are in trouble and you believe that your borrowing capacity does not classify for a bank loan, you should contact an expert. Experts, such as an Accountant, have the experience and ability to evaluate your finances. Thus, they will indicate what you can do to improve your borrowing capacity and other financial aspects. At Premier Consumer, our certified credit counselors will be please to advise you. For more information, take a look to our Debt Management Program. This program is useful to handle your debts and get you on the road to your financial freedom.
As you see, a good borrowing capacity means a chance for a bank loan. But if you do not calculate it, debts can ruin the future of your family and your financial prosperity.
he interest you pay on your debt can quickly become very expensive. Use this calculator to help determine just how expensive your debt has become… Cost-of-Debt Calculator