Credit is an instrument to leverage personal or work projects, ventures, or even investments. Sometimes certain circumstances arise to acquire goods or services such as buying a house, a vehicle, doing business, acquiring services in installments such as a mobile phone plan or in other cases, to attend a specific emergency. In these circumstances, we usually request a loan.
(Inflation and recession would affect credit applications in 2023).
Before applying for a loan, lThe first thing that you must take into account is the purpose of the money and the commitment that you are assuming when acquiring a new obligation. To do this, it is recommended to do a thorough analysis of the credit alternatives offered by the credit market, so that you can choose the one that suits you best.
Then, you must know your ability to pay and your degree of indebtedness very well. This will allow you to know with certainty if it is the right time to borrow, or if, on the contrary, you have to wait a prudent time to do so.
As a preventive measure, verify that your payment capacity allows you to meet the monthly payment of the obligation, credit should not be seen as an extension of income to cover debts that you do not have the capacity to assume. In this sense, prepare a payment schedule and integrate it into your budget and thus you will have better control over the financial obligation that the planes acquire.
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In this sense, Camilo Garay vice president of Consulting at DataCrédito Experian shares the following basic concepts to take into account when accessing credit:
• Capital: It is the amount of money that is borrowed.
• Square: It is the period of time during which the acquired obligation will be paid (number of months).
• Interest rate: It is an indicator that allows reflecting the percentage cost of debt. The interest rate shows the relationship between risk and utility that can be obtained by using a sum of money in certain situations and times.
• Interest: It is the amount of money that is charged for the use of the credit in a certain time, according to the agreed interest rate.
• Additional costs: They are the additional costs for the adjudication or administration of the credit, such as: studies, commissions or insurance.
• Quota: It is the monthly payment that is assumed for the acceptance of the credit, which contains the capital payment, the interest payment, insurance and possible additional costs.
(Design your financial plan for 2023 with these five ‘tips’).
It is important to be clear about all these concepts, prior to accepting the credit, so it is always advisable to ask the credit establishments for all this information that is normally found within the payment plan. With this payment plan, a budget can be made with certainty about the fee to be paid and in this way define whether or not it is appropriate to accept the credit so as not to become over-indebted.
Likewise, it is also important that all Colombians know and appropriate their credit history before applying for a loan.
Credit history reflects credit behavior and credit obligations. It is the set of our payment history and acquired commitments, as well as the reflection of the financial products that we have acquired. Therefore, if you are thinking of accessing a loan to achieve a specific purpose, then you can understand that knowing your credit history is important. In addition to the above, credit history generates a reputational guarantee for people, which allows them to access better credit opportunities later on.