In an ideal world, you will never have the need to take out a loan, but life is full of surprises and can be expensive, so you never know when you may need some extra cash.
When an unexpected expense crops up, it is easy for us to think that we need to take a personal loan to cover these expenses. So then when is it the right time to take a personal loan?
Here are some points that you should check off before you apply for a personal loan.
Do You Really Need It?
An essential purchase can be classified as one that is necessary in order for you to carry on living your everyday life. You may need a loan for car repairs so that you can carry on getting to work for instance, but a new TV isn’t an essential purchase that would warrant a personal loan.
You are only able to borrow so much money and every time you take a loan, it will reduce the chance of you getting another. If you then take a personal loan to pay for a non-essential item like a TV, then you will reduce your chances of getting a personal loan when you really need it.
You should then ask yourself if the purchase is necessary.
Are You Going to Improve Yourself?
The best investment that you can make is one in yourself and money that is spent on upskilling and training is money well spent. If you know that having a certain qualification or skill will improve your employment, then a personal loan can make sense.
Not only is education a good investment but having the right tools or equipment for your career can also warrant a loan.
Do You Have a Solid Credit Score?
If you have a below average credit score. i.e. below 500 then you probably shouldn’t be applying for a personal loan, which means you should work at improving your credit score. A good credit score is one above 720 and this will mean you can benefit from a lower interest rate, which results in you paying less over the life of the loan.
Also, when you have a good credit score it will be easier to secure a mortgage, as a good credit score shows that you are able to manage debt effectively.
Keep reading for more things to check off before you apply for a personal loan…
Are You Able to Borrow from a Reasonable Lender?
You may come across lenders that will offer you a loan where others won’t. Irresponsible lenders don’t have an issue with giving you debt that they know you may not be able to pay off. The interest rates on these loans are also high and ensure that if the odd customers default they are still able to cover their costs.
You need to be able to borrow from a reputable lender that has your interests in mind. Reputable lenders will assess if you are able to afford the loan and if they find that you can’t then they may reject your application. This is to protect you and your finances, so it isn’t bad news, it just means that you need to look at improving your finances so that you can get the loan.
Are You Able to Pay It Back?
This should be common sense, but when things get tough many people will take a loan even though they know they are not able to pay it back.
Taking on unmanageable debt is a big no. A reputable lender will make sure that you are able to afford it and that you are not saddled with debt you can’t handle.
The most important thing that you need to check before you apply for a loan is to make sure you can afford it and to only borrow as much as you afford comfortably. Make sure that you borrow from reputable lenders with competitive interest rates.
Is the Risk Worth It?
Personal loans have to be paid off within a certain amount of time and if you fail to pay then the lender can issue court action against you and even have you have blacklisted. This will cause damage to your credit score and make it extremely difficult for you to apply for a loan in the future.
You need to read and understand the terms and conditions of the personal loan contract and be aware of any penalties.
Also, have a look at the kind of interest rate offered. There might be a promotional rate that can start low but then may jump to a higher rate after a certain period of time.
A personal loan could be what you looking for as long as its an essential purchase or investment. When you apply for a personal loan make sure it is with a reputable lender and that you have read all the small print.