On the surface, a loan looks like an easy way out of a financial crisis. When you are in a sticky situation, only money can solve; a loan will likely bring you a reprieve. However, while it has its benefits, a loan can prove to be very burdensome if taken nonchalantly.
If you are currently facing a problem and need a loan, many institutions offer quick and easy loans. For instance, UkCredit is said to be a call away. But, before you make that call, here are 8 points you need to consider first.
1.Solid Reason to Need the Loan
First, ensure whether you need the loan and keep that reason in mind when you approach the loan office. Is it for a medical emergency, a business, or a school fees payment? Whatever your reason may be, make sure it is an absolute necessity.
Yes, financial institutions will encourage you to take loans for leisurely purposes, but this is unwise. This is because the interest charge and installments may be burdensome if you took the loan for the wrong reasons.
2. Critically Analyse Your Finances
Even after determining your need for the loan, you need to be sure that your finances permit you to repay the loan. Do not be a short-sighted borrower who only thinks of the momentary pleasure of an approved loan. Think up to the last installment and determine whether you will be able to fulfill your obligation.
A great way of doing this is calculating your debt to income ratio. Simply check how much of your income is going to finance your existing deficits shortly. If it is more than 40%, it is wise to refrain from taking the loan, as you are likely to default payments.
You could also make lump-sum payments towards your existing debts to reduce them. Remember, defaulting payments reflect badly on your credit history, so do not risk it!
3. Consider Alternative Options
Secured Loans technically have lower interest rates than personal loans. This is because of the lower risk to the lender associated with this type of borrowing. If you have an existing home loan, you could apply for a top-up as it will be cheaper than a personal loan.
4. Check Your Credit Score
Your credit score is simply a measure of your creditworthiness. Since asset collateral is not attached to personal loans, financial institutions use credit scores before granting credit. An excellent credit score will earn you a good loan at affordable interest rates.
Do not risk applying for a loan without checking, as it will only increase your hard inquiry number. Instead, if you find that you have a poor credit score, take time to correct it before applying for a loan.
5. Make a Wise Decision on How Much You Need
Before approaching the lender, calculate how much you need to based on what you need it for. Borrowing more than you need will only give you a more significant financial burden. Remember, if you are creditworthy, financial institutions may offer you more than you need. Resist the temptation and settle only for the necessary amount.
6. Take Time to Read the Fine Print
While banks must tell you essential details about your loan, some things you just have to read. Embedded in the fine print on your form are essential information such as processing fees and foreclosure charges. Taking heed of this information while still applying for the loan will prevent unpleasant surprises in the future. Do not take the loan clerk’s word for it. Read, research, and be smart.
7. Settle for the best deal possible
Over the years, the loan market has grown significantly. Both banks and many financial institutions are willing to offer unsecured loans. Before settling for a loan, check around and compare your options. Critically analyze and compare interest rates, late payment penalties, and other charges. Choose the lending house offering the least cost of borrowing.
8. Think of What Could Happen If You are Forced to Default
Unforeseen occurrences befall us all. If, by any chance, something happens that prevents you from honoring your obligation, make sure a default ruins you. Before signing and accepting the loan, just first be sure of the impact of a missed installment on your finances.