If you need to make a purchase and do not have the funds readily available, you may consider taking out a loan. This means that you will need to repay this money over a set period of time and typically pay interest on the amount borrowed. While this may sound like a good idea at first, it may not be such a good idea once you have to start repaying the money. Before you even think about taking out a loan, there are several things you should consider first. Below is a list of some basic questions you should ask yourself before taking out a loan.
Can You Afford It?
The most important question you need to ask yourself is if you can afford to take out a loan. Just because a bank or other lender agrees to offer you a loan does not mean that you afford it. You must take a close look at your budget and determine if you can work the monthly or fortnightly payments into your budget, and still have some spending money left and can put some away for savings.
Do You Need It?
If you determine that you can afford to repay the loan, you must now ask yourself if you really need to make the purchase or not. Think carefully about whether the item is a need or a want. If it is something that you really need, such as a home, car or major home repairs, then you may in fact need to take out a loan. If, on the other hand, you want to take out a loan for something you want, such as a holiday or new furniture, a loan may not be your best option. Instead, you can device a long-term plan for saving the money needed to make the purchase without borrowing money.
Is It the Right Time?
You should also think about whether this is the right time to take out a loan or if you should wait a little longer. For example, if you want to take out a home mortgage to purchase a home, you need to determine if the timing is right. If you credit score is not high enough to offer you lower interest rates, you may need to wait a few years build up your credit and then apply for you home mortgage. Or, you may need to wait until you have enough for a down payment on your home to get better rates. Waiting just a few years could have you thousands of dollars of the course of your mortgage.
How Much Will I Repay?
Finally, before you consider taking out a loan sit down and figure out exactly how much you will need to repay on your loan, including interest. Compare this to the actually cost of the loan and determine if it is really worth borrowing the money or not. Once you see how much extra you will be required to pay in interest, you may realise that the loan is not worth the added expense.
If you honestly answer all of these questions and still think that a loan is the best option for you, then be sure to shop around for the best interest rates. Take you time and never jump into any type of loan without fully understanding what your financial obligation is. This will help you make the financial decisions that are best for your specific situation. Think about alternative loan options as well, there are different benefits and low income financial aid available to low income earners. These are a great source of financial assistance without taking on a loan which can but you into debt and increase your financial worries.