Before you sign up, carefully consider if it’s the right decision for you.
With debt levels rising and emergency funds not being sufficient, more and more people are turning to short-term, personal loans to cover emergencies, immediate purchases, pay for medical bills or consolidate their credit card debt bills.
Taking out a loan is an important financial decision, so it’s best to make it a smart choice. Here are five essential things you should know before you take out a loan:
Why you need the money
Often things that seem necessary, really are not. Sometime, you can postpone most purchases until you have saved up the money to buy them in cash, rather than taking out a loan. For example, if it is for something that is recreational, such enjoying a jet-ski or a concert, you can save up the money for later, because they are not necessary purchases.
If the reason you need the money isn’t exactly an emergency, and you can wait it out a few months.
How much can you borrow and pay back
It’s important to work out how much you can afford to repay each month, as this will affect the type of loan you’d go for. Make sure you are realistic about how much you could pay if your mortgage or rent went up, or if you had to spend more on things like energy bills or if your pay was cut.
Also, find out how much the loan will cost when you add up all the interest you will pay, as well as all of the money you borrowed.
The rate of interest
While it is easier to secure a loan from a bank you have an account with, it may not be ideal. Before you settle on a bank, it is very important to scout around for a good deal. A quick research will give you a fair idea on the ball park range of the interest rates and the way to go about it.
How fast can you pay off the loan
Have you planned out on how to repay the debt? Will you be paying weekly, fortnightly or monthly? Do you plan to pay it off sooner than the term? These key factors will help you choose the right loan to ensure that you avoid any unnecessary costs.
What if you don’t repay on time
You should also consider the long-term effects if you lost your job or suffered a substantial cut in income. With some loans, the interest rate might increase if you don’t make a payment by the due date.
In short, getting a loan is a big step financially, and shouldn’t be taken lightly. Once you make the decision to borrow money, make sure you’re going with the right lender and most flexible terms.
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