Three people discuss the pros and cons of borrowing money

If you plan to borrow money, have you taken the time to consider consider which lending option is best for you at the present time?

There is more to borrowing money than finding a lender, taking the funds and signing on the dotted line. Be sure you’ve considered these 10 things:

1. Choose your lender carefully

When borrowing money, it makes good sense to only consider reputable lenders. Do your homework by looking for user reviews about the lender and by researching accreditation on the lender from trustworthy sources (the Better Business Bureau, for example). Be cautious about payday lenders and untested money borrowing apps.

2. Try to avoid borrowing from family or friends

While friends and family members may be some of the people we trust the most, unpaid debt can damage relationships, sometimes irreparably.

If you’re concerned about your ability to repay the money, it’s best to steer clear of this arrangement. There are plenty of other options that won’t risk damaging your personal relationships. Consider personal loan options first.

3. Understand the cost of borrowing money

It doesn’t matter if you’re borrowing from a bank or using a credit card, it’s imperative to know what you’re getting into when you borrow money. Before you apply for a loan or a line of credit, learn about the difference between APR and interest rates as well as what factors can affect the personal loan rates you receive. This will help you better understand how much you’re paying in interest over the life of the loan, or simply put, how much the loan will cost.

4. Know why you are borrowing the money

You never want to borrow money just to borrow money. You should have a clear idea of why you need the funds, such as to consolidate debt at a lower rate, pay medical bills or complete a home repair or remodel project. Make sure to budget for the expense so that you can borrow close to the exact amount you need. (See #9)

5. Create a plan to pay the money back ASAP

Before you accept the funds, create a plan for paying back the money. With this plan in place from the start, you’ll know which steps to take to minimize the impact of the loan on your finances (both in the short and long term). With a personal loan from Discover, you could have a predetermined payoff schedule and fixed monthly payments with a clear payoff date.

6. Do your loan research

You should never assume that all loans are the same, as this could lead you toward the wrong product and/or paying more in interest than necessary.

For example, there are some differences between a personal loan and a personal line of credit, as well as between a home equity loan and a personal loan. Knowing the pros and cons of all your options will allow you to make an informed and confident decision.

One of the advantages of a personal loan, for example, is that it doesn’t require collateral (you’re not taking the loan against your house or car).

7. Learn the terms

This goes along with point #6 above. For example, if you’re interested in a personal loan, don’t assume that every bank will offer the same payment terms. Shop around based on interest rate, available terms, customer service and trustworthiness of the lender.

8. Think about what to pay for first

Unless you’re borrowing money for one specific need, you’ll want to prioritize your spending. Should you pay for home repairs first, then medical bills? Should you pay for education expenses, then tackle projects around the home?

Prioritizing your most crucial needs ahead of time should help you get the most out of the money you borrow.

9. Don’t bite off more than you can chew

Just because you qualify to borrow a certain amount of money doesn’t mean you have to. If you need $15,000 and qualify for $30,000, don’t make the mistake of taking the additional money if you’re not sure you’ll be able to pay it back on time.

10. Stay patient

Whether it’s choosing a lender or methodically paying down the balance of a loan, try to stay patient and follow your plan. This can help you get the most out of the money you borrow and have better financial opportunities in the future.

Suggested reading: Getting a Personal Loan: Common Questions & Answers