There will come the point in almost everyone’s life in which they’ll ask the question, “Do I need a loan?”
No matter the reason behind the loan, there are other questions you want to ask yourself before you get one. These questions help you decide if the loan is the best option, or if there are other avenues to explore first.
Before taking out a loan, ask yourself the following five questions.
What is the Purpose of the Loan?
First, you should have a reason as to why you’re taking out a loan. If it’s simply to have more money in your bank account, that likely isn’t the best reason.
If you have a goal in mind and that loan will help you achieve it, then borrowing some money may be what you need.
The goal you have in mind will also help you decide on what type of loan to get. Maybe you’re working on starting a business, in which a business loan would be something to look at. Alternatively, you could require a small cash boost for an unforeseen expense such as car repairs in which payday loans could be an option providing you’ll be able to meet the repayments.
How Much Do I Really Need?
It’s important to know exactly how much you need.
Take some time to get as close of an estimate as possible before going for your loan. You want to find a balance between taking out the minimum amount, and also having enough to pay what you need.
What Will My Monthly Payments Look Like?
One of the biggest questions to ask yourself is what your monthly payments will look like, and if you can afford them. Your answer to this one will ultimately determine if you should go forward with the loan or not.
You can use online loan calculators to give you a general idea of your payments. Add that into your monthly budget to see if you’ll have enough money to pay it off.
What Are the Interest Rates?
Interest rates play a critical role in getting a loan. Each month, a percentage of interest rates gets added to your monthly payments. It’s easy to forget about those rates which make a loan more expensive than initially planned.
Remember, the longer you take to pay back the loan, the more you pay in interest fees. Factor in the interest rates to see if you can afford to pay more than the minimum payments.
Do I Qualify for the Loan?
Do you meet all the requirements for the loan? Depending on the type of loan you’re applying for, there may be strict qualifications you have to keep in mind.
Your credit score factors into almost any loan you get. Too low of a credit score and you’ll likely be denied the loan. Other factors include if you have other debt and what your monthly income looks like.
These five questions will help you decide if a loan is the best option for you, and which type of loan you should get. Speak with your potential lender about these questions. You wouldn’t want to take out a loan to only fall into debt.