Loans have long been a familiar part of life for many of us. But not everyone takes out loans. Some people do not use the services of banks on principle, and others are afraid to make long-term commitments. At the same time, a loan can be a convenient financial instrument, but people are afraid to take it.
We will tell you how to get rid of the main fears of loans.
Fear of long loans
For example, a six-month or one-year loan seems less harmless than a five-year loan. It’s scary to get into debt for several years.
How to stop being afraid
Evaluate your sources of income during the time you plan to request a loan. Several factors usually influence this: your mode of employment: employment contract, self-employment or occasional part-time work. The position of the organisation you work for is also important. Consider whether maternity leave is near and whether there are additional sources of income in case you lose your job.
Remember that with approximately the same conditions (loan amount, interest rate) the monthly payment on a long-term loan will be smaller, so it will not affect your budget too much.
If possible, make monthly instalments of more than the contractual amount. Any remaining balance will be used for early partial repayment or will remain in the account and will be taken into account in future payments. This will help you if your income decreases.
If you have money left over, you can use it to make early partial repayments. This will help reduce the amount of your monthly payments or shorten the term of the loan.
Fear of large overpayments
Overpayment on a loan depends on several factors: interest rate, loan term and additional conditions (e.g. insurance, fees for SMS-alerts, etc.). The higher the interest rate and longer the term of the loan, the higher the overpayment will be, and this is what many people fear.
How to stop being afraid
Compare the offers of several banks, use loan calculators and check what amount of overpayment on different loan terms will be optimal. Do not apply for a loan if the expected overpayment causes you psychological discomfort.
Remember about refinancing. If you have already taken a loan with a large overpayment, find out from other lending institutions whether it can be refinanced. Carefully read the detailed terms of the new agreement – the overpayment is not always reduced.
If possible, close the loan early or use partial early repayment. In these cases, the loan overpayment will be reduced.
Fear of mortgages
A mortgage is a great long-term loan. Not surprisingly, mortgage borrowers often experience tremendous nervous tension. They need a job and a steady income for 10 years or more. Unforeseen expenses such as medical treatment, repairs or replacing a broken down car become a source of great stress.
How to stop being afraid
Think carefully about all your options. If you are buying a property with a mortgage as your only home, consider whether renting would be more beneficial in this situation. Also, don’t buy a flat as an investment if you’re struggling to save for a down payment and mortgage payments will take up a large portion of your salary.
Consider all options for discount mortgage programmes.
Try to pay as much as possible as a down payment. It is better to do so in order to reduce the amount of the loan.
Fear of late payments and debt collectors
When a person takes a loan, he plans to repay it on time and without delays. However, different situations happen in life: you can fall ill and lose your ability to work for a long time, or lose your job. There is another side to this problem. Many have heard of debt collectors, who recently used illegal methods of debt collection.
How to stop being afraid
It is worth remembering that the lender – a bank or a microfinance organisation – is interested in the borrower fulfilling his obligations. Therefore, if you are unable to repay a loan or credit, you should immediately contact the creditor. Together you will find a solution to the problem: restructuring or refinancing of the debt, credit holidays.
If the debt will continue to be transferred to collectors, there is nothing critical in this situation. Firstly, the market of collection services is now strictly regulated by legislation. Collectors are obliged to comply with the rules of interaction with the debtor. Secondly, collectors often offer favourable conditions for the return of money.
For the most extreme situations, there is the option of bankruptcy.