5 Things To Consider Before Taking Out A Personal Loan
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The price of borrowing money has fallen considerably. With access to an unsecured loan with an interest rate below 3% – it would have been nearer 10% five or six years ago – the market has never been as competitive for people in need of finance.
With that in mind you might well be thinking that the time is right for you to apply for the money you need for a car, holiday or home improvement. Just make sure that when you take out a loan that it’s not for something frivolous, but to improve your financial situation. With that in mind, there are a few things you must consider.
Here are five questions to ask yourself before considering a personal loan:
Have you got your house in order?
Before you take out a loan, it might be worth having a quick spring clean of your finances. Go through your last few statements, make sure you’re aware of everything you spend and see if there are any bills you can trim or, more importantly, any debts that you could pay off before you apply for a loan as this improves your chances of obtaining further credit.
Are there any errors on your credit rating?
Speaking of this, your credit rating is important as this is the score that would-be lenders will use to decide whether or not to approve your application. You can review your file and correct any errors on there with a ‘notice of correction’ before you make your application to boost your chances of being successful.
How much do you really need?
While interest rates are low, many lenders will only offer their best rate on higher sums of money. However, don’t be tempted to think you should borrow lots more than you need just to get this rate. That might cause your application to fail or leave you with a much bigger debt than is necessary. There are some circumstances where it might help to borrow a little bit more – but only do this if it leaves you better off in the long run.
What’s the true cost of borrowing the money?
Speaking of being better off in the long run, it’s important to consider the total cost of repaying your loan. Lenders should tell you their APR (annual percentage rate) – which demonstrates the interest and the fees that you can expect to pay each year. This figure can then be used to compare loans with one another. You can also use a loan calculator to help you to work out the cost to you.
Would I be better off with a credit card?
Finally, make sure that a loan is actually the right choice for you. A credit card might well be a better option for smaller amounts of money, for example. Alternatively, if you could afford the item up front without leaving your finances drained you could do this and avoid paying any interest. It’s wrong to just assume that a loan is the best option – make sure you’ve done your research and checked out the other sources of funding first.
Have you ever thought about taking a personal loan to help your finances?
Photo courtesy of: NikolayFrolochkin
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