4 Things to Consider before getting a Personal Loan
Getting a loan is a significant financial decision, and can affect your life for many years to come. Unfortunately, many people end up borrowing too much and facing almost unsurmountable levels of debt, so it’s important to think carefully about your decision before proceeding. Here are 4 important things to consider financially before you get a loan.
Why You’re Borrowing
Before you go any further in considering taking out a loan, it’s essential that you ask yourself why you need it. A loan can be a sound financial decision, however it can also impact your life negatively if you aren’t careful. Taking out a loan should be a last resort when you know you can’t save for it yourself, and can be useful in the purchasing of large items such as a car or to assist with the start-up of a business. By knowing exactly why you’re taking out a loan, you can ensure that the funds aren’t misdirected, leaving you with a large debt and nothing to show for it!
Evaluate Your Credit Rating
To successfully secure a loan, your credit rating will have to be in good shape. While you’re considering your application, work on eliminating any outstanding payments on your credit cards, ensure your bills are up to date and getting your finances into order. You’re looking to prove to your lender that you are a responsible borrower who will be able to meet their financial obligations throughout the duration of the loan.
Consolidate Your Debts
Taking out a loan while you have other current debt isn’t advisable, however sometimes it simply can’t be avoided. Before applying for a new loan, it’s important to sort out any existing debt that you currently have. Consider debt consolidation to combine all of your loans and credit card debt into one single amount. This allows you to really evaluate your situation, and work on reducing your debts much faster. You’ll only have one monthly payment to save for, and the rate of interest is usually much lower than what you are currently paying. There are many agencies that offer loans consolidation in Australia, however it is essential that you spend the time to find one that is reputable and professional.
Know Your Limits
There is usually a huge difference between what you can physically repay, and what you can pay back comfortably. You don’t want to be crippled by your loan repayments, so always base your calculations on what you are happy to set aside each week. Leave room for emergencies and unexpected expenses to save yourself from struggling to meet repayments when times get tough financially. Once you have a figure in mind, stick to it! Your lender may offer you a much higher amount when they evaluate your application, but resist the temptation and keep to the figure you applied for.
With these things all in mind, you can now evaluate your intention to apply for a loan and see if it is really the best option for you. Remember that you can always seek independent financial advice before you start the application process, as this can save you from making a decision that you may come to regret in the long term. When thinking of getting a loan, always stick to what you know is within your financial limits, and objectively assess the situation before you sign on the dotted line.
Hamish is an active blogger amongst the online personal finance community who loves sharing hints and tips with his readers in order to avoid financial difficulties later on in life.