If you want to borrow money, do it safely
Borrowing money is a widespread phenomenon in Denmark. In addition to borrowing money for the purchase of housing, a survey by the Danish Competition and Consumer Agency by Good Finance shows that every fourth Danes over the age of 18 has or has had a consumer loan.
All indebted to both ears and have lost track of their finances
Most people know TV3’s program Luxury trap, where we follow a number of Danes, all of whom have ended up in an economic crisis. They are all indebted to both ears and have lost track of their finances. We can quickly agree that these are examples where borrowing money has gone wrong.
But fortunately this does not have to be the case. It is just about the fact that as a consumer you have to borrow money properly and only use the lenders who make a thorough credit assessment of the applicant.
Two types of loans
Initially, here we give a brief introduction to two overall types of loans. We have secured loans where the lender gets collateral in the loan in the form of mortgages in for example house or car. In the event that the borrower does not pay off the loan, the lender can claim the asset sold and thus get the money back. Therefore, the lender runs a minor risk, which is also reflected in the interest rate level, which is low on many secured loan types.
Besides the fact that the lender has security in the form of a mortgage, the money is also locked to be used for a specific purpose. This can be for example for the purchase of a house, apartment, cooperative, car etc.
There are also unsecured loans, which are commonly referred to as consumer loans and private loans. The size of this type of loan is typically DKK 10,000 – 500,000 and with maturities of up to 15 years. For this type of loan, the lender does not have collateral in the form of a mortgage on an asset.
No demands are made on what the money is used for, but many, for example, use a private or consumer loan for remodeling and renovation projects, buying used car, travel and special events such as weddings.
Short-term loans are also a type of unsecured loan, where the loan amount is, however, somewhat lower, and the same with the loan period, which is typically less than 3 months. This is also why you experience significant higher interest rates compared to more conventional unsecured loans.
Somewhat mistakenly, many believe that the name quick pay means that money is paid extra quickly. Mortgages are not necessarily paid faster than other types of loans. Instead, the name refers to money having to be paid back quickly, typically within 3 months.
In the UK, this type of loan goes under the name “payday loan”. Many use payday loans to cover a financial hole at the end of the month until you get a salary where the loan is repaid.
Always start with the budget
No matter what type of loan you are looking for, always start looking at your current economy and make a realistic and fair budget. Basically, you must have control over your income, your fixed expenses and any existing debt. When you deduct all your fixed and current expenses from your income, you know your available amount. However, you should spend a little every month on unforeseen expenses.
Once you know your disposable amount, you also know roughly how much you can afford to pay off on a monthly loan. That way, you can also better find out how much money you can actually afford to borrow.
At Good Finance we have developed a loan calculator where you can adjust the loan amount and maturity to get an expected monthly benefit. However, it is important to remember that this is just an estimate, since the final offer you receive through Good Finance requires that the lenders make an overall assessment of your financial situation in relation to the borrowing requirement you have.
When you need to apply for a loan, it is always important that you start with a budget.
Respect the credit rating
All banks and lenders carry out a credit rating of the applicant. The purpose is to assess whether the applicant has enough air in the economy to take out a loan. Specifically, they must find out if it is sound to borrow money for the applicant. Here they look at your income, expenses, any existing debt, housing type and a number of other factors.
If you apply for a loan from one or more banks but are not approved, it is most likely an indication that your financial situation cannot bear to pay off on a loan. So, unless a mistake has occurred or your information is in error, you should respect this and start focusing on improving your financial situation.
What can you do to improve your finances
If you want to borrow money for a holiday, for renovation of the home or something else, but unfortunately cannot be approved, it is always a good idea to start looking at your expenses. If they can be reduced, it will release some money and thus make a greater available amount.
If you already have debt, you should also focus on getting it down. It also gives you more air in the economy. A larger income could also change your credit rating. However, this parameter is difficult to adjust from one day to the next. Therefore, you should focus more on your expenses and any existing debt
Also read How can I improve my chances of borrowing money
But sometimes you just have to admit that borrowing money is not always the best solution. A good exercise could be that instead you start saving money every month and in that way create some air in the economy.