Posted by Kevan Lee :: May 1, 2008 @ 3:00 pm

There are two ways to benefit financially from the lessons of horse racing.

1. Bet on the race.
2. Use horse racing as a metaphor for your own financial borrowing.

Obviously, the first strategy is misguided, short-sighted, and in some places, illegal. “Betting the horses” denotes sad, lonely misers or Tobey Maguire’s character in Seabiscuit. Neither is an admirable role model for money management.

Using horse racing as a metaphor is much more practical.

The Kentucky Derby, the annual horse race that serves as the start of the coveted racing Triple Crown, takes place on Saturday at Churchill Downs in Louisville, Kent., and it is a perfect opportunity to glean some wisdom from the strategies of some of the best trainers and jockeys in the world.

For many, the race is a celebration of the beauty of equestrian events. Others use it as an excuse to wear big hats and drink fancy alcoholic drinks before noon. Either way, millions of Americans will be watching, in attendance or on television, when the gates open and the horses come down the stretch.

Smart consumers should pay especially close attention to the proceedings this weekend. Horse racing is a lucrative business for those involved, but it can also provide great opportunities for outsiders who follow the sport. There are several important principles involved in having a successful race, and these rules can make life much easier for a borrower.

1. Do your research.

Before the race even begins, trainers have to do their research. For some, the process starts all the way back at breeding, where the best bloodlines are handpicked to make an ideal racing horse. Research also involves finding out what other horses will be competing and how the different strategies of other jockeys might mesh come race time. On top of that, trainers and managers have to know track conditions, race rules, proper diets, and practice regimens.

Borrowers should do the same research when borrowing money. There are a myriad of choices out there, which means there are also a wide variety of pitfalls and money traps, too. Some deals might sound great (“no payments for six months;” “free 5lb. turkey with loan”), but when it comes down to the fine print, the deals can be more like financial prison sentences.

Rushing into a big borrowing decision can lead to unfortunate consequences. It is best to take the time to shop around to find the best deal that works for a given financial situation. Borrowing with a huge penalty for missed payments would be a bad idea for anyone with a slow payment history. Getting a sweet deal on deferred payments is no good if the rate come payment time is sky high.

Lending Club offers great rates on loans, and there are no hidden fees or surprise add-ons. The rate beats that of the national average, and it is locked in for three years. As p2p lending grows, the choices for borrowers will become more and more advantageous, provided the consumers are willing to do their research.

2. Get off to a good start.

One of the most important parts of the horse race is getting off to a good start. When the gates open, there is a mad dash for the top position, and the ones who have the best starts get the opportunity to set the pace for the rest of the race.

Likewise, setting a good tempo in the borrowing race is equally important. When the time comes to begin paying back a loan, borrowers would be wise to get off to a good start by making consistent payments. The rest of the loan period will be much easier to handle if there is a habit of steady payment already in place.

In horse racing, some horses can overcome slow starts to get back to the front of the pack later on in the race. However, using this strategy is a hectic, draining, desperate way to race. No consumer wants that.

3. Pass with confidence.

The only way to come from the back of the pack up to the front is to make some strong moves past other horses. The ones who do this best often stand the best chance of winning, and in many past Kentucky Derbies, the first horse across the finish line has come from behind to win.
Borrowers can use this strategy to get ahead of a loan and pay it off early. Making steady payments is very admirable, and it is more than many consumers are able to handle. However, if a borrower is able to go above and beyond the standard payment, he or she will benefit down the road. Paying off more of the principal will shorten the overall pay period and lessen the impact of the interest. Instead of blowing a rebate check or a Christmas bonus on frivolous spending, using the extra cash to get on top of debt might be a better plan.

4. Finish strong.

In many horse races, the leaders will look to have the race won, only to fade down the stretch. Setting such a strong pace can often wear out the leader, allowing others to pass him at the very end.
Borrowers don’t have to worry about competition from other consumers, but they do need to keep in mind the importance of finishing strong. Often times, people will be responsible for long stretches of a loan and then lose momentum as the months or years drag on. Life can get in the way (losing jobs, moving, other expenses), and before they know it, the loan hasn’t been paid for three months and the fees are spiraling out of control.

Jockeys play their races safe by making sure that their horse will still have enough kick to finish with a flourish, and borrowers would be wise to follow suit. By keeping an emergency fund available or setting aside a specific amount each month that goes directly toward loan payments, borrowers would avoid the temptation to let the loan slide.