7 Things To Consider Before Taking Out A Loan
Most of us will take out several loans in our lifetime. They can be incredibly helpful for all kinds of purchases, however it’s important that you borrow wisely. This involves borrowing the right amount and choosing the right lender. Below are just a few important things to consider before taking out a loan.
How much do you need?
It’s important to borrow the right amount. Borrow too much and you’ll be paying unnecessary interest. Borrow too little, and you won’t be able to cover your needs. Some lenders will allow you to fine-tune how much you want to borrow, while others will only offer select amounts. Most lenders will also have minimum and maximum borrowing limits.
What is the loan for?
Is your loan covering something you need or something you want? And is there a better way of funding it? Sometimes loans are a necessity – as when buying a home. If you’re taking out a loan to buy clothes or fund a vacation, you should consider whether it’s better to save up or use a credit card. Consider the fact there are specialist loans out there for many different purposes, and that some of these loans may have perks beyond a standard loan (for example, you can find interest-free medical loans).
Are you eligible for a loan?
Loan eligibility will likely depend on your credit score. Run a credit check beforehand to determine how good your score is and how likely you are to get approved by lenders. Getting rejected by lenders can decrease your credit score further. There are bad credit loans out there, but these typically have a lot more interest.
How much can you afford to pay each month?
Make sure that you can keep up with monthly repayments. There are free online calculators that can help you calculate how much you will pay back each month based on the amount and term length. A longer loan term could mean small monthly repayments – but you may also pay more interest in the long run.
What are the interest rates?
Interest fees are how lenders make their money. Almost all lenders will charge interest fees (there are some interest free loans, but they tend to be for special purposes and may still charge interest if you miss a payment). Be careful of selecting a high interest loan just because the repayments are low or it doesn’t require a high credit score.
Are there any other fees to be wary of?
Some lenders will charge extra fees – such as late payment fees, origination fees or even early repayment fees. Make sure to look into these fees so that they don’t catch you out by surprise. It’s worth also noting that some lenders may ask for a deposit, while others may charge a balloon payment at the end.
Does the lender have a good reputation?
Finally, make sure that the lender has a good reputation. Read reviews to see what customer service is like and make sure they are official and regulated.
