Short or long? It looks like we’re going to talk about coffee, but if that were the way the answer would be easy. Let’s say yes, the deadline for personal credit. Which one brings you the most benefits? Is it a short term or will it be a long term?
Unfortunately there is not only one answer, because depending on the financial situation of the household, a shorter term or a longer term may be more advantageous. Some criteria to take into account when choosing the deadline:
If you want a reduced maturity, is the credit approved? Yes or no?
- If the answer is yes, this may be an option, but is it the best choice?
- If the answer is no, it is no longer an option for the shorter term and we have to opt for a longer term.
Purpose of Credit
- Buy a car?
- Do works on housing?
- Consolidate credits?
- Pay for the studies?
- Buy a house
The purpose of credit is a very important factor in choosing the term because it will be able to associate the term to the purpose and to the good or service you are acquiring.
When you are buying a new car, you may want to associate the credit with the warranty period of the car, for when you end the warranty, if you want, buy a new car to get back the warranty and never have major maintenance concerns. There are several types of credits that ensure this possibility to the customer, such as leasing or ALD.
But if you want to do works in the house, in case they are deep works, perhaps the best option is to associate the credit with the useful life of the improvements that made in the housing. Possibly in the next 30 years, it does not increase the living room, or it does not have 3 bedrooms to have 1 bedroom and 1 suite, so it is best to opt for a longer term in time.
If the purpose of the credit is to study , the ideal is a longer term, because during the period you are studying your income tends to be lower, and presuppose that when you finish the course, you will achieve a higher income in the market of job. There are currently specific credits that fit this purpose and with lower interest rates.
If the purpose of the credit is to consolidate credits, ideally, the deadline should be as broad as possible to ensure that the effort rate is reduced. The objective is to reduce the risk of possible defaults and give the holder the opportunity to start saving, to be able to start a new life and to be able to repay the loan with the savings that will be obtained every month.
Effort Rate, the Most Important Criterion
The effort rate of all your credits should not exceed 50% of your net income. Why this value and not any other? In a perfect world it would not be necessary to borrow money in order to maintain certain living standards, but unfortunately it is not always possible. The goal is to keep some room in your family budget to save and cope with any unforeseen circumstances that may arise. The higher the percentage of income you channel to pay benefits, the lower your quality of life will be. You will come to the conclusion that you live and work to pay installments, you no longer have the ability to decide your future.
Before choosing the deadline, you must first decide what percentage of “quality of life you are willing to give up” today to improve your quality of life in the future. If you decide that you are willing to waive 50% of your net income to pay benefits, you must choose the term that fits that effort rate, be it 3 years or 10 years. Above all, you must ensure that you can meet all your commitments. When this happens, the deadline becomes secondary, because it does not live because of the credits but rather because of their dreams and desires.