5 Things To Consider Before You Take Out A Personal Loan

Thinking of taking out a personal loan? Putting yourself in debt should never be an impulsive decision. Here are 5 considerations to make before taking out a personal loan.

Is it for a worthwhile cause?

There are some good reasons to take out a personal loan – perhaps a pipe has burst in your home and you can’t afford to get it repaired or perhaps you need to get your car fixed or maybe you need a cash advance for some birthday presents. You could even have plans to start a business or you may be planning to add value to your home with a renovation project. What you shouldn’t do is borrow money only to blow it on personal luxuries such as a shopping spree or a holiday that you could have saved up for – you’ll only regret these luxuries afterwards when the debt payment come out your bank. You should also never borrow money to gamble with – by doing this, you’re gambling with somebody else’s money which you could lose, leaving you in lots in debt for no reason at all.

Are there any other ways to raise the money?

There could be other ways of raising money for your needs – this is important to consider before opting for a loan. There could be times that aren’t an emergency in which saving up is a better strategy such as a wedding or a new car. There could even be times where you could be eligible for legal compensation – if can’t afford treatment for a car accident injury you might be better off seeking out vehicle accident lawyers. If you’re thinking of starting a business, you may even be able to seek out investors. On top of this, there are many other moneymaking schemes to consider such as selling old belongings or getting paid to take part in an experiment.

Can you afford the monthly payments?

It’s also important to consider you monthly budget before taking out a loan. On top of all your regular bills and any existing debts, another loan repayment could be too much for your income, which could prevent you from making payments in other areas leading to a downward spiral into more debt. Be realistic about what you can afford first – if you desperately need the loan, consider trying to make cutbacks to your spending where possible.

Is your credit score high enough?

Many lenders will reject your application if your credit score is low. Your score is primarily affected by your ability to make payments on time, but other factors can also play a part. In fact, getting rejected by lenders can further damage your score. Check your credit score yourself before approaching a lender – if your score is low, consider looking into credit builder schemes to help improve your rating.

Could you find cheaper interest rates elsewhere?

Before selecting a loan, make sure to weigh up the interest rates. Emergency payday loans often have the highest interest rates, whilst bank loans generally have low interest rates. In certain circumstances, you may even be able to find 0% interest loans such as specialist loans for medical emergencies and funerals. There are also credit cards with temporary 0% interest rates – these can be worth taking advantage of if you regularly need to borrow small amounts.