Navigating financial options is not always easy. If you have not previously applied for any form of credit account, you may not know where to begin. With many people feeling the strain of the Global economic situation, it is unsurprising that borrowing is at an all-time high.
If you find yourself in a position where you need to borrow money, it is best to know what options are available to you. You will also need to know what the different forms of credit accounts available mean for you and how applying for a credit account works. Best credit card calculator https://www.kredittkortinfo.no/kredittkort-kalkulator/.
Below, we have highlighted some of the most important questions you should be asking yourself before applying for or accepting any credit offers. While we have given examples of aspects to consider below, the information is not exhaustive.
Why Do You Need Money?
The first question you should ask yourself is why you need the money you are applying for and then if it is truly necessary to borrow money for that reason. It can be tempting if your friends book a holiday or your neighbor gets a new car to keep up with these people even if you do not have the means to do so.
Being honest with yourself about why you need the money and if it is necessary to pay interest when repaying it is important. If your car breaks down, you do not have savings, and you cannot get to work without it, then applying for a credit account is a reasonable action, if not a necessity.
However, not being able to afford to attend a sporting or music event with friends is not necessarily a reason to put hundreds of dollars onto a credit card. There are very few times that you will not pay interest on a credit account, so you should always consider this when asking yourself this question.
How Often Will You Need the Account?
The frequency at which you will need to use the credit account you are considering will inform you of the type of credit to apply for. If you are considering a one-time purchase, such as a car, RV, or an extension to your home, a loan will be the best option.
However, if you are looking for a type of credit that you can use more than once, such as to make online purchases or for long-term home renovations, a credit card or store card account could be more beneficial. A credit or store card account will allow you to make smaller purchases up to the balance of the account and repay immediately or over time.
Alternatively, you can apply for a finance option specifically aimed at the type of purchase you are making. Purchase-specific finance would apply to car finance options, mortgages, and more. Considering purchase-specific finance options does not mean you will be limited in terms of lenders or competitive rates.
Are There Offers Available to You?
When taking out any type of finance, you should always check if there are offers available to you to make the credit account cheaper. There are several ways to find out which offers are available to you.
Firstly, you can check with the bank with which you hold your current account. Many banks will show you in your online account which other products are available to you because you are an account holder. Some banks will also pre-approve you for credit accounts with them.
You may find that you are able to apply for or have been pre-approved for a credit card, loan, or overdraft with your current bank. The pre-approval will be based on how your bank can see that you are managing your finances and the type of products that they offer.
Secondly, you can check the available offers to you for the specific types of finance that you are interested in. The easiest way to do this is to use a comparison or broker site that will list all of the offers available based on your information.
Before seeing the information on the various offers available on a comparison site, you will be asked to provide your personal details. You will then be shown the offers available specifically to you rather than generally. You can also see the chances of you being approved for the product you are applying for.
What Interest Rates Are Being Offered?
It is important to consider the interest rates being offered for any or all of the credit accounts that you are considering. The interest rate is the biggest factor in determining how much you will pay for the credit amount you are given.
The lower the interest, the less you will pay overall for the money you borrow. If you have a low credit rating or have not previously applied for credit, companies will offer you credit but with a higher interest rate. The higher interest rate is because you are deemed to be at a higher risk, which may cost the lender more money in the long term.
If you have been pre-approved by your bank for a credit card, loan, or overdraft, it is always best to check the interest rates. Just because you are guaranteed to be accepted for the credit account with your bank does not mean it is the most competitive offer available to you.
You can use the information about the pre-approval and compare it to the interest rates offered when entering your details into a comparison site. If you find that a different lender will offer a slightly lower interest rate but has a lower chance of approval, you should then decide which is most important to you.
Declined credit applications will negatively affect your credit rating, so if a lower-interest product has a significantly lower chance of being approved, paying the additional interest is the best option. However, this will depend on how much more you will pay for the higher-interest product.
A credit or store card account is your best chance of having the option to make purchases interest-free. Many store or credit card accounts will offer a set period of interest-free purchases as standard.
Store credit accounts will offer different lengths of time interest-free depending on the products you are purchasing. With credit cards, you will receive a set period interest-free, provided the card balance is zero when you make the purchase.
For most credit cards, this will be a period of 45 days; however, for some cards, it may be longer. The length of time you will not pay interest will be included in the terms and conditions of your account. So, providing you pay the balance before that date, you will not be charged interest.
How Quickly Can You Repay?
A credit card is an excellent option for borrowing if you need the money for a short period only. If you are making payments online and are interested in the payment protection offered by a credit card and can pay for the purchase quickly, a credit card is your best option.
If you are not able to clear the balance of your credit card before interest is charged, it could still be the best option, depending on the interest rate and how long it will take you to clear the balance.
You can use a kredittkort rente kalkulator, such as the one available at https://www.kredittkortinfo.no/kredittkort-kalkulator/, to check how much interest you will have to pay each month until the balance is cleared.
If you need a longer repayment term, you may be better off applying for a fixed-interest loan. The interest rate is often considerably lower for a loan than a credit or store card, making it a cheaper option for long-term repayments or larger borrowing amounts.
Is the Credit Offer Affordable?
Before applying for any form of credit, no matter how small the amount, you should consider whether the repayments will be affordable for you over the length of the agreement. You should consider if you know there are going to be any significant financial changes in the near future before applying.
Affordability is important because if you miss payments or pay less than your credit agreement stipulates, you will be charged default fees and additional interest. Missed or lower payments will also be recorded on your credit file, which is checked by every lender you apply to.
Defaulted payments, even by a small amount, will appear on your credit file for a number of years, so it is important to ensure they do not happen. If, during the time of your repayments, your circumstances change unexpectedly, contact the lender as soon as possible to explain and find a resolution.
If you do not think you can afford the repayments for the credit account you are applying for, it is best that you do not apply. If you are applying for credit to refinance your current outstanding balances, it would be best to contact those companies instead of taking out additional credit you cannot afford to repay.