Maybe you need to borrow money to pay for car repair, an overdue bill or to cover last month’s bill. Maybe you’re buying a new car and you need down payment. Maybe you’re starting a new business and you need additional capital. No matter your needs are, borrowing money comes with advantages and disadvantages. It is a major decision you need to carefully and thoroughly think through.
To help you make sure whether borrowing money is the right route to take, here are key questions to ask:
Do you really need the loan?
One of the first things to ask yourself if you’re thinking of taking out a loan is if you really need it or if you just want the promise of quick cash. Remember that there’s a difference between need and want. Sometimes, borrowing money is not the answer if you just want it because you can. So before you sign any dotted line and add some strain to your budget, it’s best to get it right from the beginning. Between need and want, the former is always the better reason for a loan.
How much can you afford?
Other than the why behind the loan, the other equally important factor to consider when borrowing money is your budget. Sit down and take your time to check your budget. Find out how much you can comfortably afford to set aside for loan payments per month so you won’t have to worry about due dates later on. If you think you’ll find it difficult to take care of repayments, it might be best to postpone the phone for now.
What is the interest rate?
You’ll also need to find out the total amount you’ll need to repay. This means finding out about the interest rate, hidden fees and other charges associated with the personal loan. Interest rates usually vary from one type of loan to another. Make sure you do your homework and compare your loan options accordingly. Remember also that some borrowers may advertise low interest rates but bleed you out with hidden fees. Always make it a point to read the fine print to know more about hidden fees.
How long will it take to repay the loan?
In addition to finding out what you can afford, you should also take a look at the repayment period. Some loans require you to repay the money in less than a year. Others may offer longer terms. Secured loans, for example, let you repay the loan for years depending on the amount and type of security involved. You can also tailor the amount and repayment period according to your budget to ensure you’ll be able to handle the monthly repayments without glitch.
Does the loan require collateral?
Short term loans generally do not require collateral which means loan amounts are also smaller as opposed to secured personal loans. If you need a large amount of money for your financial needs, you’ll have to consider what type of collateral you can use to secure the loan. There are many types of secured loans to compare when you’re ready to take out a personal loan.
What happens if you delay or miss a payment?
If you carefully considered your need and budget, missing a payment shouldn’t be a problem. But it can still happen so it’s best to cover all bases. Before you sign any debt agreement, ask your lender about delayed or missed payments and how much charges or hidden fees it may add to the total cost of your loan.