Before you jump at the chance to take out a personal loan to get that special something you saw, it’s worth stopping and thinking. Taking on a loan is a big responsibility and isn’t a decision that should be made lightly. To ensure that you’re making this decision for the right reasons, it can be useful to run yourself through a few basic questions before you sign on the dotted line. Read on to find out more.
Is this something you can do without a loan?
This question is bigger than ‘do I need money’? Often in our haste to jump to take out a loan, we forget alternatives. The first question you should ask yourself is ‘Is this something I need now?’ ‘Need’ and ‘now’ are the operative terms in that sentence – if you just want it now, revisit it later when you have more capital; if you need it, but not necessarily now, same thing.
Next you should ask yourself if there aren’t alternative sources of income you should consider. It can be something as simple as asking for some money from a family member or close friend. Next might be requesting a salary advance at work. Explore your options. Find out if the people in your life can give you a hand – who knows, you might be able to help them out later!
Are you capable of servicing the loan?
If you’re committed that you need a personal loan, are you capable of paying it back? Read the terms and conditions closely. If this is your first loan, ensure you understand the meaning of terms such as ‘interest’, ‘term’ and ‘principal’. It may be useful getting a financially-minded friend to give you a hand on this part.
Once you have an understanding of the documentation in front of you, think carefully about how much spending cash you have left over after each pay day and figure out how much of that you can spare to service the loan. Remember to account for interest, and once you figure out a budget to stick to it!
Is this the right loan product for you?
Shop around and try and see if there’s a specific loan product just for your purposes. Renovation loan packages and education loan packages exist to take care of costs associated with property refurbishment and tuition fees, respectively, and can often offer an advantage over the top of a generic personal loan. What’s more, they will look better on your credit record when you apply for a loan for a car or a home, as the banker scrutinising your record will know exactly what the money was used for.