Sometimes in life, borrowing money is the only solution for getting out of financial hardship. If you are in a tricky financial situation and aren’t sure how to get relief, then a loan could be your best option.
Before you can go ahead and get a loan, there are a lot of different things that you need to think about. If you don’t carefully think through your decision to take out a loan, then you could end up making a mistake.
Here are six things that you need to think about when taking out a loan:
If you want to take out a loan, then the first thing that you need to consider is the type of loan that you are going to take out. There are many different types of loans that you can take out but payday loans are by far the most common. Payday loans are also the easiest to take out because they don’t require a guarantor or any form of collateral. All you need is a reasonably good credit score and enough money coming in to make repayments. Payday loans are sometimes called a payday advance loan because they are designed to top up people’s bank accounts in the interim between paydays. If you are going to take out one of these loans, then you need to bear in mind that they typically have high-interest rates. Conduct research online so that you can find a lender with low-interest rates.
Another thing that’s worth considering is the lender from whom you are going to take out a loan. As mentioned in the previous point, it’s a very good idea to conduct online research before taking out a loan, so that you can find a lender who offers low-interest rates but also has a good reputation. If a lender’s reviews are bad across the board, then it’s a good idea to avoid them. Lenders who attract the scorn of borrowers tend to employ unscrupulous collection practices, such as cold calling, repeated text messages, and even physical visits.
How long do you want to take out a loan for? Most lenders will allow you to extend your repayment dates for at least a year. Some will even allow you an extension of longer than a year. With that said, the longer your repayment period is, the more you will have to pay. If you don’t want to have to spend thousands more in interest, then it’s a good idea to pay your loan back over as little a period as possible. Make sure to calculate your incoming money so that you can effectively decide upon a repayment period.
How much do you want to borrow? Something that a lot of people do when they are taking out loans is to borrow more than they need to so that they can have a little extra spending money. Every little bit of extra money you borrow will cost you more in the long run, so only borrow enough for what you need it for (which will be addressed next). Carefully work out the exact amount that you want to borrow prior to making your application so that you can get an amount that’s realistic for your needs.
You also need to have a good reason for taking out a loan. It’s a very bad idea to get into the habit of needlessly taking out loans, just so that you can buy frivolous things, like unnecessary clothes and meals out. It’s very common for young people to get into debt so that they can keep up appearances with their social circle and eat out on a regular basis. This is a habit that you need to get out of if you do this. Make sure that you only ever take out loans for things that are absolutely necessary and will impact your life negatively if they can’t be paid for.
Lastly, consider your credit rating. As mentioned in this post’s first point, lenders will check your credit score in order to determine your suitability for a loan. If you have a low credit score, then you likely won’t be able to take out a loan without a guarantor or collateral. You can check your credit score for free online, which is definitely worth doing if you want to take out a loan. If you make a loan application and your score’s bad, then it will drop even more. Knowing what it is before making your application will give you a better idea about whether or not it’s a good idea to apply.
Sometimes in life, loans are an absolute necessity. They can be a great way of getting out of trouble and resolving uncomfortable financial situations, but they must be treated properly. If you mishandle a loan, then you could cause yourself a great deal of trouble.
I'm a mum in my mid 30s with over 15 years of childcare experience working as a private nanny, babysitter and a few years as a nursery teacher. Now I've got my own family too! I love finding great products for mums and kids.