Do you need an immediate cash injection? Then you are probably thinking about a loan. Before contacting your bank or a trusted lender, ask yourself the following important questions.
1) Am I borrowing for the right reasons?
When you take out a loan, you are in debt. However, not all debts are bad debts. So, knowing that the money you are getting will help you achieve your goals or keep studying, you can be sure that you are borrowing for the right reasons.
If you are thinking of applying for additional funding because you really want to buy a brand new sports car even though your old vehicle is still in good shape, think twice.
2) Which type of loan is best suited to my needs?
There are a variety of loans available, such as payday loans, business loans, and personal loans. Of course, the type of loan you choose should fit your goals and reasons why you need a loan in the first place.
When you need a small amount of money to buy a larger item than your budget allows before payday and you can pay it back quickly, a payday loan is ideal. On the other hand, if you need a higher loan and need a longer repayment period, a personal loan may be the better option.
It is also important to note that some loans come with terms and conditions related to how you will spend the money. For example, some personal loans will not be available for business expenses.
3) How much do I really need?
It’s a good idea to avoid asking for more cash than you actually need. Remember, you pay interest on every penny you borrow!
With that in mind, sit down and do the math to generate an exact number to present to your bank or chosen lender. These calculations are especially important when taking out a debt consolidation loan to consolidate all of your debts.
4) Can I actually afford the monthly repayments?
If you take out a loan and cannot make a repayment or are late in making a payment, rest assured that this behavior is affecting your credit score. A bad credit rating will make financing difficult in the future, and sometimes even impossible.
Should you still find a lender who is by your side despite a bad credit rating, you are guaranteed to pay infinitely higher interest rates.
In short, be careful about paying back the money you owe. If, even before applying for the loan, you suspect that you are unlikely to be able to afford your repayments, then the risk is simply not worth it.
5) What is my credit rating?
Speaking of creditworthiness, it pays to check your current creditworthiness before applying for funding. Yes – you will also get a score the first time you take out a loan. The good news is that your loan records are pretty easy to access. You can do this online and many of the websites that offer this service are free to use.
Ask a financial professional for more advice
Remember, if you are unsure how to apply for a loan or which offer is best for you, don’t hesitate to seek advice from a financial professional.