How to measure if you should take a personal loan?
At some point in your life, you might be faced with a situation where you don’t have the initial funds needed to pay for something you need or want. Fortunately, there is an answer that can help solve your problem: a personal loan.
When Should I Get a Personal Loan?
Although different types of loans are available today – such as in a car or home loan – a personal loan doesn’t require an applicant to state a specific purpose when filing for an application. Despite that, there are still some common reasons why people do it. These include scenarios such as:
When Struggling with Credit Card Debt
One of the biggest reasons why people borrow money via a personal loan is so that they can consolidate and finish paying the debt from their credit cards. In debt consolidation, a personal loan is taken out to match the money you owe on your existing credit cards and then use this to pay off the creditors.
The ideal situation here is when the acquired personal loan has a lower interest rate compared to the average that you’re paying right now. You will then continue repaying your loan with a fixed monthly repayment period which usually lasts three to seven years.
Also, personal loans usually have lower interest rates in comparison to credit cards, letting you save money in the long run. Aside from that, consolidating two or more expenditures can also make your life simpler by paying a single bill each month.
When There’s an Expense You Can’t Forgo
Do you need to get that plane ticket as soon as possible but don’t have the money to spend yet? Perhaps you’re relocating to a new workplace, and you don’t have the cash on hand to use for your daily needs?
These are some of the circumstances that people apply a personal loan for as it helps them get the funds needed for certain opportunities. Despite having to spend more in the long run, securing that dream adventure or job you always wanted would still be worth it.
When Your Insurance Can’t Cover Medical Bills
A personal loan can be a better choice than not having one at all in case there’s an upcoming medical expense that you can’t pay for right now. You can always ask your medical provider for their in-house terms and rates before looking elsewhere to ensure that you won’t bypass the best offer on the table.
When I Shouldn’t Get a Personal Loan
As mentioned earlier, getting a personal loan may give you lower interest rates than other forms of debts, but it may not be the best solution all the time. Here are a few instances when you shouldn’t get a personal loan.
When You Can Easily Save Money
Are you itching to get that new gadget that just came out or a new accessory for your vehicle? If these needs can wait, then you may instead opt to save the amount needed each month to buy them in one go. Otherwise, you might be spending more in the long run which can last for years.
When It’s Not a Good Investment
Do you have home improvement projects in mind or a similar kind of investment? When you decide to get a personal loan for a renovation, be sure that it will add up to the property’s value in the future. Else, you’d be paying for something that will ultimately lead to a loss of money. If you have a car that gets you from A to B but saw the 2019 model just released and feel like an upgrade on the new car.
When You Don’t Have a Stable Job
Unsteady cash flow is one of the biggest reasons why you shouldn’t take out a personal loan right now. If you believe that your employment will change for the worse in the years to come, you might want to make do without a loan and instead cut back on expenses instead. We do not encourage anyone to rush into lending money, always take a measured approach to manage your personal finance.
Things to Consider When Applying for a Personal Loan
One of the most crucial factors when you’re deciding to get a personal loan is the “why”. As said earlier, you can take out a personal loan for whatever reason in mind. If you can repay it, go ahead! Getting a personal loan can be a good way to develop your credit score – so long as you can keep up with the repayments, of course.
With that said, here are several important things to consider when applying for a personal loan today:
Capacity to Repay the Agreed Amount
You should only apply for a personal loan if you have the capacity to make the repayments each month without much effort. It’s possible to prepare a budget and then analyse if the loan-to-income ratio you have is within acceptable margins that can let you accomplish all of its payment terms. By then, you can go ahead and search for a deal that matches this budget.
When you have an idea of your overall capability to spend, you can protect yourself against lenders who may try to convince you to settle for a higher paying loan that you may not afford. Be sure that the interest and repayments are all within comfortable limits before agreeing to a deal.
Lenders aren’t the same. Each one has a different offer from the other, and as a borrower, it’s your job to look for the one that’s right for you. You’ll want to go with a financial agent who can give you the best terms for your financial situation.
One of the most important aspects here is the interest rates. Although the fixed interest rates are higher in comparison to variable rates, the end monthly payment is still going to be the same once the term ends. On the other hand, you may experience low repayments with a variable interest, but this will still go up as time goes by.
Terms and Agreements
Before you sign the dotted lines, be sure that you’ve understood the terms and agreements of your loan. If you have any questions, now would be the right time to let your lender know.
Aside from that, you should also do your own computations and double-check if all of the figures add up accordingly. If a difference is spotted, there may be a hidden charge lurking somewhere that you are unaware of.
You should only get a personal loan to help lessen the burden of your financial challenges and not to put yourself in a more difficult situation. There are many things to consider before applying for one, and you should ponder on all of these first. Perhaps you don’t need a personal loan after all, or maybe it’s the only answer to fix your immediate problems.
Whichever the case, making an educated decision is always a good sign especially when filing for a personal loan.