Many of us have occasions in life when we need to borrow money; for emergencies, unexpected expenses, medical situations, college expenses, and the list goes on. You may already have an awareness of loans with balloon payments or penalties for paying off early, but there’s more to understanding how to borrow responsibly than just avoiding these hidden traps. Here are some things to consider when faced with the need to borrow money:

1. Borrow only for a true need. Never take out a loan unless you have no other choice and the need is one that must be met immediately. A tropical vacation is probably not an emergency (although it may be a need!), whereas replacing the transmission on your vehicle probably is a real and pressing need. Just remember you’ll be paying back whatever you borrow and then some, due to interest on the loan.

2. Know your numbers. Before you sign on the dotted line, find out your credit score and research what kind of loan rates you qualify for to avoid paying more than you should. The better your credit score, the better loan terms available to you. Check and see what’s out there with different loan packages. Repayment terms, rate, loan amounts and fees can all vary wildly.

3. Borrow only what you can repay. In addition to the principle and interest, there may be loan fees attached to the money you borrow. If you don’t pay your installments on time, there could also be penalties attached to your loan balance. Budget in advance for this expense and schedule your monthly payments as automatic bank drafts a few days before they’re due to ensure you avoid late charges and penalties. If you follow a repayment plan that budgets for the loan amount plus a little “wiggle room,” you should be able to make your payments on time and still meet your other monthly expenses without experiencing financial strain.

4. Read the contract. This may seem obvious but know what you are signing before you commit yourself. Ask about fees and penalties, origination fees, fixed vs variable rates, refinance options, and any other questions you have. Your lender should have no problem answering your questions and putting you at ease. If you aren’t sure about a detail, ask for clarification and don’t sign a contract until you are certain you understand the terms.

If you do your best to only borrow what you can afford to pay back, use the money for an unforeseen emergency or true need, shop for the loan model and repayment terms, understand all the conditions of the loan, have a budget or plan for loan repayment that you can realistically commit to, you will be borrowing responsibly.