Have you ever considered taking a loan? Maybe or maybe not! Chances are the younger you are, the more distant you are to loan and the older you are, the more involved you are with loans. In Canada, middle-aged people owed the most loan in 2020. And as time passes, these stats are nowhere to get lower.
The debt problem is still a persistent problem that many households face in Canada. More often, such problems are due to the poor financial knowledge of people.
Many people in their younger days do not take time to learn about finances and how to manage money because they believe it’s not the time to learn about finances; its time to enjoy, party and later when they reach their late 20s and begin to shoulder responsibilities, poor financial knowledge knocks them off the ground. Only 33% of youngsters are financially literate in Canada.
In these times, the most common and popular way to manage difficult times is to get instant cash loan in Canada. Of course, taking a loan comes with risk, but your family, relatives and friends will suggest you take a loan, so why not go for it. However, a loan may help you get over your immediate financial difficulty, but it won’t improve how you handle money. So first, educate yourself about the loan.
Nevertheless, a loan can become a necessity in certain situations, but spending it on unnecessary things can adversely affect your life and lives dependent on you. Therefore, it is essential for you to learn more about the loan and use them effectively.
Although you may have read many articles and blogs on ‘How to take a loan’ or ‘How to use a loan the right way?’ in this blog, let’s not discuss the right, but the wrong ways to use or things you shouldn’t do with loan.
It is important to learn how to use a loan, and it is equally important for you to learn how not to use a loan to avoid using it the wrong way.
What you should not do with a loan
- Do not change jobs
- It feels amazing to resign from your old, life-sucking job and it sounds even more thrilling and pleasing to start a business and be your own boss. But guess what? Don’t do it! At least when you owe a loan.
- Starting a business and making it successful are two very different things. You already know business is a risky bet, and just because John has started a business (hypothetically), you should too. If a job is your only source of income, you should probably stick to it and focus on creating more income source.
- If you change and things don’t go the right way, banks won’t listen to your explanations because they expect you to pay the money on time, and if you fail to do so, it can affect your credit score and be troublesome.
- Gamble
- This goes without saying. Using the loan money in gambling can hit you hard. One thing that you must realize is you do not own the money you loan; a person or business has lent you the money with some conditions an you are obliged to pay it back. And gambling, where the chances of winning and losing are 50-50 can be a tough bet.
- Many states have rules regarding gambling, and it’s illegal to do if the government does not manage it. So despite whatever reasons you may have, gambling with your loan is not advisable.
- Owning multiple loans
- This one is what you must avoid doing. Many people take loans to settle loans! For example, a person has two credit cards and an outstanding amount of $300. Each month he pays the bill with a credit card. And the next month with another credit card.
- This may seem smart, but unfortunately, it will hurt your credit score, and the credit is only revolving from one account to another. It will not end this way. This is a sure way to get into a debt trap and negatively impact credit score.
- Do not skip or default on payment
- After talking about it, you should not take multiple loans; it’s even more important not to skip on the payments.
- A single missed payment can decrease credit score by 150 points. And talking about a default, it can rob as much as 350 points straight from your credit score. So it can be disastrous and will impact your future probability of getting a loan.
- Avoid defaulting and skipping payments; bring the habit of budgeting into your finances and set a portion of your income to pay your monthly EMIs. Be disciplined about your finances.
- Forget about the documents
- After you get a loan, you will also receive some documents regarding the loan. These documents will contain information related to your loan amount, interest rate, tenure, personal details, EMI plan and other important information.
- Ensure you go through these documents thoroughly and rectify any error by contacting the lender. Any wrong information may lead to later on confusion.
- Choosing a wrong tenure period
- A wrong tenure period can either make your loan extend unnecessarily long, taking more money from you as interest or too short with big monthly payments, making you struggle with everyday expenses.
- So while choosing the right tenure period, consider other important factors, such as groceries, rents, bills and payments and check what tenure will fit the best in your budget.
- But of course, if you can afford to make huge payments, you can, but if you cannot, then adjust the EMI plan and choose the best for you.
Wrap up
So these are the things that you should avoid while getting a loan. Whether you want a loan to purchase a car or finance your home, the above factors play an important role in the type of loan you will choose and impact your financial life.
As a general rule, you must keep learning about anything before getting into it. Of course, you cannot be 100% ready for anything, but having an idea about a particular topic will help you better understand.
So whether you are applying for easy fast loans in canada, these tips will help you avoid bad credit habits and improve your financial knowledge.