Nowadays, it’s easier than ever before to take out a loan. However, that doesn’t mean that taking out a loan should ever be an impulsive decision. Getting into debt can result in more costs in the long run, which is something you need to be prepared for.
Here are just a few questions to ask yourself before taking out a loan that will help you to make the right choice.
1. Is it for a good cause?
First, you need to consider whether you’re borrowing money for a valid cause.
If it’s for a personal treat such as new clothes or a holiday, you’re often best off saving up rather than borrowing money. Similarly, you should never take out a loan to gamble with – if you lose it all, you’ll forever regret the debt payments after. Also, it’s usually never a good idea to take out a loan to pay off other loans unless you’re refinancing or consolidating debts.
2. Are there any other ways of raising funds?
Secondly, you should consider whether there are any other ways to raise the required funds aside from taking out a loan.
If it’s an emergency cost, you could consider selling your clutter for cash. Alternatively, you could look into options such as pawning possessions or getting an equity release from your home. Meanwhile, when it comes to medical costs you may be able to pay this off with legal compensation – there are many law firms such as Marks and Harrison that could help compensate for an injury that wasn’t your fault. Then of course, there always the option of saving up for expenses that aren’t emergencies.
3. How good is your credit score?
Whilst there are some lenders that will give you money even with a low credit score, these loans often have huge amounts of interest so, you could be paying back double what you borrowed.
In order to gain access to lower interest loans, it pays to have a good credit score. Your credit score is largely based on how reliable you are at paying creditors on time – if you miss payments a lot, you could find that you have a low credit score.
Fortunately, there are many credit builder schemes out there. Try out sites like Experian, Equifax and TransUnion to check your credit score.
4. How much can you afford to pay back a month?
You should also consider how much more you’re prepared to pay back each month.
Think about how much you’re currently spending each month and how much room you have left in your monthly budget. You don’t want to be paying more each month than you can realistically afford, otherwise you could end up falling behind on other payments and accumulating other debts.
There are extended loans out there that offer small monthly payments over a long period; however, these often come with greater amounts of interest.