If money has been tight recently, but you have a couple of things that need paying for, you might be considering taking out a loan. While a loan can help you to get back on track, if not thought through properly, it can also cause a lot of problems.
Don’t make the mistake that many people make and rush into a loan; if you do, you’ll end up regretting it. Take the time to think the decision through, to ensure that a loan is the best option for your situation.
To make it easier for you to decide whether getting a loan is a good idea, here are five question to ask yourself:
- Why do you need a loan?
You might think that the answer is obvious; to pay a bill or buy something new, but think it through properly. Why is your first thought to get a loan to pay for whatever needs paying? Instead of taking out a loan, why don’t you save up?
If what you need to loan for can wait, then you’ll have enough time to save up for it. If you want a loan to pay for a luxury holiday or a new designer coat, take a step back and look at a bigger picture. You don’t need a holiday or a new coat, what you need is financial security.
However, if you need a loan to cover the cost of a broken boiler or damage to your car, that’s a different story. Never borrow to buy luxuries or to treat yourself; only take out a loan when you actually, need it. To help you workout whether you need a loan, visit http://www.moneysavingexpert.com.
- Where will you get the loan from?
The next thing to ask yourself is where you plan on getting the loan from; a bank or a payday loan company? Or is it from a less reputable source? Getting a loan from a bank or loan company is one thing, getting it from an individual (a non-family member) is another.
By opting to get your loan via a reputable source, you know that should you struggle to pay it back, you won’t be in danger. Take out a loan with the local loan shark, and you’re putting yourself in a dangerous situation. Only ever take out a loan through an accredited company or bank.
To find out where you are eligible for a loan, contact your bank or visit PersonalMoneyStore.com. Finding out where you can get a loan from is important so that you can calculate whether it’s worth it.
- How will you pay the money back?
It’s all well and good thinking that a loan will fix your financial problems, but don’t forget that you’ll have to pay it back. Before taking out a loan, always find out when it will need to be repaid. Otherwise, you could end up causing all sorts of problems for yourself.
You need to work out how much of the loan you can afford to pay back each month, making sure that it can all be paid by the deadline. You need to work this out before taking the loan out, instead of presuming that everything will work out.
- How high is the interest?
The downside to taking out a loan is that as well as paying off what you borrowed, you’ll also need to pay interest on that amount. This might seem obvious, but when it comes to loans, far too many of us don’t pay attention to how much the interest will be.
If the interest is too high, it will make paying off the loan incredibly difficult. So it’s important that you opt for a loan that has a very low rate of interest.
- Did you read the contract?
Never sign anything without reading the contract first. This might sound like basic common sense, but you would be surprised at how many people don’t read contracts before signing them.
Make sure that before you agree to any loan, that you read the contract that comes with it from cover to cover. If you don’t feel comfortable doing it yourself, consult a lawyer. If you sign something without reading it, you could end up having to pay back a lot more than you owe.
Loans can be incredibly helpful in getting your finances back on track, but you need to be careful when taking one out. Think the decision through and take your time choosing a company to go through. Always opt for a reputable loan, and make sure to double check the interest rate.