Meta: What should you consider when taking out a loan? We have listed 5 important things to factor in when borrowing money.
There are so numerous factors to consider when deciding to take out a loan, it can be hard to know where to start.
Ideally, you want a loan with the lowest interest rates and the best perks; however, that is not always possible, especially if you have a poor credit rating.
We’ve listed 5 things to consider when taking a loan.
1. Credit Rating
Your credit history indicates to lenders how responsible you are with regular payments, therefore it will have a huge influence on determining what kind of loan you’re entitled to.
But while good credit history is important if you want to enjoy low-interest rates and flexible payments, all is not lost if you don’t have a good track record. There are loans available for borrowers who have a poor credit report or no history at all; plus, building up a decent score is achievable if you budget carefully.
How much money do you really need to borrow? Working out your budget before taking out a loan is important so that you can plan to keep up with the repayments. You can work out how much you can afford by writing down what you typically earn and spend in a given month. You might also consider downloading a budgeting app if it helps you out.
Take your time over your budget and be as thorough and honest as possible when working out your expenses. A rushed decision can cost you in the long term, so it pays to plan ahead. If possible, try not to borrow money in order to repay existing debts as this can lead to problems in the long term.
3. Type of loan
You need to determine exactly what type of loan you need. Are you looking for a secured or unsecured loan? No collateral is necessary for an unsecured loan, but you’ll need to have a fair credit history to qualify. While secured loans are easier to acquire if you’ve got a low credit score or no credit history, your property is often used as collateral, therefore there is a risk that you might lose your home if you fail to keep up the repayments. If you’re applying for a student loan, make sure you know what you’re entitled to in your country or state.
While the simplest way to get a loan is directly from your own bank or building society, it’s always a good idea to shop around. Make sure that you borrow from an experienced and reputable lender that offers good customer support.
Do your research online and ask around. Does the lender have responsive customer service? How flexible are they with repayments? There are a multitude of different loans available, so do your research to compare the best personal loans.
4. Interest rates
Whether you decide on a secured or an unsecured loan, you’ll need to consider the interest rate. Ideally, you want to choose a loan that offers the lowest interest rate, so that there’s less to pay back in the long term. However, the rate of interest you’re charged on a loan will often depend on your credit history.
Be wary of ‘interest-free’ deals. These are often only interest-free if you make the repayments within a set time frame, and are likely to charge high rates of interest if this requirement is not met. Also, look out for any hidden charges that are easy to miss on the surface. These include fees to cover admin, processing, origination, and appraisal. You might also be charged for requesting a credit report.
5.Terms and conditions
Regardless of which lender you choose when taking out a loan, it’s crucial that you read the small print. Some lenders will try to sell you a loan based on the perks it offers, while glazing over less desirable details, such as extra fees and charges.
Always read the terms and conditions and make sure you fully understand them before signing on the dotted line.
When applying for a loan, there are lots of factors to take into consideration. Hopefully, our tips will help you decide what is best for you.