Borrowing money should never be a simple decision, but it must be thought through carefully before. Borrowing money without doing the work before properly increasing the risk that you will end up with future financial problems.
Here we will present in a series a list of a number of points that you should consider. The sad truth is that it is better to think about before than after.
Does your finances manage to borrow?
The first and most basic to go through is how your or your finances look at the moment. Loans always come with extra costs that a space must be provided. Of course, there may be exceptions such as moving from an apartment with an expensive monthly cost to a cheap house. Where the loan cost and all other costs can be lower than what the housing cost previously. Not very ordinary, but possible.
A larger private loan that extends over many years can easily cost USD 5,000 in repayments and interest each month. Smaller loans that have shorter maturities can also cost similar amounts without any problems as the repayment is so great. Mortgages of several million can, although the interest rate for these is low, cost much more than that every month.
Figure out what your finances can do and then figure out what the intended loan would cost you per month. The basic rule here is that if you are least hesitant if you can afford, you should skip borrowing money and try to find another solution instead.
House here is a good example since you may not be able to afford the house which is centrally located and is in top condition. But you might be able to afford a house that is a little further away as they can usually be millions cheaper. Or why not buy a house with renovation needs that you fix over time. Often there is a solution that does not cost as much.
Do you have to borrow?
Really as basic as point one is to really investigate if there is a need to borrow. Loans can be divided into a few different categories depending on how you see it. Here I intend to divide them into three different parts.
These are loans that are only for pure consumption or which you can probably call it for pleasure. This includes money to be used for clothing, electronics, holidays, etc. It doesn’t have to be wrong to lend to this but there are no things you “must” have. Certainly it is nice to lie on the beach on some warm southern island when it is cold here at home in Sweden. But to say that you have to do it is not true.
If this is the question of consumer loans, then you should be very confident of advice and that it is really worth the price. For you can most certainly add a number of thousands of dollars to the cost in the form of interest rates.
Loans generally have a pretty bad reputation but if there is any type of loan that does not have it, it is a loan for housing. It is simply not reasonable to have so much money saved on the bank that a whole home can be purchased for these. The vast majority of us are thus forced to borrow money to be able to buy a home and there is nothing strange about this.
Then just because it is an okay loan basically you should not stop using the brain for it. As I mentioned in the paragraph before, a home can cost very different depending on where you buy. Now as I write this the interest rates are very low so even a little larger loans do not cost very much every month. If you borrow 1 million you can expect about 900 USD in interest per month and if you borrow 4 million it is more close to 3,000 USD per month. Big difference but no huge costs that can easily fool you.
As we have, as I said, were low interest rates now and they only reach up to a few percent more, it can easily end up with 2,500 alternatives USD 10,000 a month only in interest. This is then calculated after adjustment. Nowadays, there is also a requirement for amortization that is not included here at all, which can be at similar levels as the interest cost per month.