Never Take the Full Amount Offered to You for a Loan
If you have ever applied for a student loan, car loan, or home loan, you know that financial institutions will give you the total amount of money they will lend you and allow you to shop from there. However, you don’t have to take it all.
This may seem like a bit of common sense, all too often we see a check from a lender saying how much we can “afford”. The bank gives you a car loan in the amount of $ 15,000. That means you can afford a $ 15,000 car, right? Not really. Your budget is not determined by how much you are loaned. It is determined by how much you can get back. The Art of Masculinity explains how this applies to student loan debt as well:
Before starting your studies, you will receive a letter telling you how much student loans you have been approved for. You don’t have to accept the full amount. Take a look at your overall financial situation and decide how much you need to survive a year of college. Many students take the full amount and spend what is left over from studies and textbooks. But if you work while at school, you don’t need to do this.
If you borrow more money than you really need, you will need higher monthly payments to pay off the loan on time. However, if you can afford a higher monthly payment, then paying that amount against a lower balance means that your loan will be paid off earlier and at lower interest. Banks know that the more they lend you a loan, the more interest they can pay back, but this does not mean that you should accept the offer.
What Every Young Person Should Know About Student Loans | The art of masculinity