Loans can be something of a minefield, particularly if you have little to no experience with them. It can be tempting to look at them as free money without considering their long-term implications. However, it’s extremely important to consider the impact lending will have on your finances and future life. For example, you’ll need to consider the levels of interest you’ll be paying as well as the implications of late payments. In this article, we suggest a few questions you may need to ask before you take out a loan. Upon hearing the answers to each one, you’ll be able to more easily determine whether or not you should be borrowing money in this way and at this time.
Can I Afford to Borrow Money?
For many people, a loan is a last resort. However, others may use one simply because they don’t feel comfortable spending a lot of money in one go, even if they can theoretically afford a certain purchase or service. Try to carefully prioritize before you go into debt. Is this particular expense vital? Is there no other way of raising the funds? You may be able to avoid a complex and costly situation by avoiding having to borrow money altogether – or it may be the best possible way of bridging a financial gap.
Can I Revise My Repayments Further Down the Line?
Try to establish whether you might be able to adjust your payment plan later on if you’re struggling to keep up with repayments. You should also look into the possibility of refinancing, as you may find that adjustments are possible following sweeping changes to interest rates and other relevant circumstances. For example, it is possible to refinance or consolidate student loans after a certain amount of time. This may provide you with the opportunity to save money or release some equity.
Are There Any Hidden Costs?
When a money lending or credit service is recommended to you, the process may be made to sound very straightforward. However, some less scrupulous companies will gloss over the hidden charges involved to make their deal seem a little more desirable. Be sure to ask about administration charges and fees for early repayment as well as finding out whether or not your contributions will remain at a fixed rate or vary depending on the financial landscape.
What Happens If I Default?
It is vital that you look into possible enforcement proceedings before you borrow any money – even if you’re totally confident that you’ll be able to make all repayments. It’s impossible to know what the future will bring, and court fees or fines can force you even deeper into a financial hole.
What Will This Do to My Credit?
It’s important to maintain good credit where at all possible. Regular, on-time repayments may improve your score, while late repayments can damage it significantly. This can affect your future plans in a major way, so always keep a close eye on the positive and negative impacts that a certain loan may have.