Thinking Before You Borrow Money


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 in the second section of this series, we continue to address various good points for you to take into consideration before any loan application. If you want to read the first part, you can do it here. There we will discuss if your finances can handle a loan, if you really need to borrow and type of loan.

SMS loan warning

SMS loan warning

For about 10 years there have been so-called SMS loans on the market. Initially, it was almost always the mobile phone and its SMS function that was used why they were called this name. Nowadays the loans are almost always searched through a website instead of why the name may not fit a little well anymore. However, the loan itself is still exactly the same regardless of what it should be called.

In short, it is a bank loan in the same way as a private loan but here with a much shorter maturity and then also a cost that must be paid in a short time.

It is precisely this with the short time that is the big problem with SMS loans compared to ordinary private loans. Because if you look at the actual krona it costs to borrow, it does not have to be more expensive with SMS loans at all, but it is often cheaper to m. . The risk is therefore great that if you do not have the money today you will not have them in 30 days.

If you know for certain that you have the money to manage to repay and the loan is really necessary you can consider a loan of this type. But if you are not quite sure about this, you should definitely look for other options.

You can affect the interest rate

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The interest rates that the banks print on their websites are not always the same as the absolute interest rate you can get. For some types of loans, such as SMS loans, this may be so, but if you look at mortgages as another example, it is not at all that way.

In short you can say that there are three main factors that determine what interest rate you get and that is

  • Loans – What type of loan you are looking for, how big the loan is, how long the term is, etc. In the eyes of the lender, this is better with a large loan over a longer period of time, which is why they usually have a lower interest rate.
  • Lenders – Different credit institutions and banks have different “rates” for their loans. Take Bluestep as an example here that has chosen to target borrowers who have poorer finances and thus take a greater risk when lending money. This means that they also have a higher interest rate on their loans. The big banks are usually the most difficult to borrow, but at the same time they often offer the best terms. Thus, comparing lenders is important to make sure you get the lowest price.
  • Creditworthiness – As I mentioned in the previous paragraph, there is a greater risk of lending money to someone with poorer creditworthiness. Your credit rating is an aggregate rating from a financial point of view of what it looks like in your life right now. A person with no loans, living cheaply and having a high salary has a better rating than one with several loans, payment notes and unemployed. The better your situation, the greater the opportunity to influence.

If you have a good credit rating then your chances are better to lower the interest rate and this is then both for the one you get as a list interest rate and the one you can negotiate for. The tip is to simply talk to your lender and see if you can’t do anything about the interest rate.

Effective interest rate

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When it comes to interest, you just don’t look at the nominal interest rate. Thus, it is the interest rate that always stands for a loan and which the lenders prefer to use in their marketing. However, this is just the interest rate that accrues for the loan itself without regard to anything else. Often it is therefore better to check what the effective interest rate is instead.

Namely, effective interest is obtained by taking the nominal interest rate and all other possible costs for a loan such as avi-fee and set-up fee. The sum of this impact on an annual basis is the effective interest rate. If the loan does not have any costs other than the nominal interest rate, then the effective rate will be the same, but if something is added it will be higher. If you have two equivalent loans, you can basically compare which of those with the lowest effective interest rate and then know that that loan is cheaper.

Interest rate that is paid out on an annual basis

Interest rate that is paid out on an annual basis

One thing to keep in mind is that this is an interest rate that is paid out on an annual basis. Thus, it is not particularly suitable for looking at loans that extend for a shorter period than one year. Do you take SMS loans here as an example that is often only one month long but which is recalculated in such a way that the effective interest rate shows what the cost will be if you constantly take new such loans for a full year. Thus, you get a frighteningly high effective interest rate on these loans, something that is often used in the media to scare people away from SMS loans. This way, you can easily get an effective interest rate of over 1,000%. However, this does not mean that it will be so expensive for you to borrow in kroner in this way. When it comes to SMS loans, however, you can compare two with the same maturity to see even with the effective interest rate which loan is the cheapest. SMS loans should be careful, but it is better here to check exactly what the loan costs exactly in kronor (which is often far too much) than the effective interest rate.

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