March 28, 2020 Last updated April 8th, 2020 241 Reads share

5 Things to Know Before You Take Personal Loan

Image Credit: DepositPhotos

In life, when there are urgent situations demanding your financial responsibility. There are times when all available means to get the money needed just prove abortive. And the only means left is to take out a personal loan.

Life costs money. To live a good life, we all need money to leverage some of the good things money can buy. In a situation where there is a shortage of cash, taking a loan could help you cover for unexcepted expenses, pay for a significant purchase, pay bills, pay off higher interest loans, etc.

Whatever the reason for taking out loans, it’s crucial you think intelligently, smart, and very hard before you borrow money. Don’t just conclude that money is the only bailout means in such a situation.

There could be other means to get out of the financial situations like consulting, negotiation, selling unwanted household items, making installments payment from your regular income, etc.

But if you’re convinced enough that applying for loans is the way out, consider the following questions. By asking and providing answers to these 5 questions, you’ll save yourself from not only taking bad loans but also make a positive financial decision.

Here are the five questions to consider asking yourself before applying for a loan.

Do I Need The Money?

The most important question on the list. Be sincere and honest with yourself. Do you really need this money so urgently that taking a loan is the best possible option?

If you can’t find a convincing answer to this question, by all means, don’t take the loan. While taking a loan in some situations may bring temporary financial relief, it could also bring severe financial instability and insecurity in the long run.

Analyze your current financial status to determine if taking out a loan is the right decision for you.

Sometimes, and if possible, it’s best to first seek financial help from family and friends before taking the route of applying for a loan. Getting financial help from famili and friends is more helpful, safe, and favorable than taking loans with their associated interest and fees.

With family and friends, you don’t have to pay interest fees or additional charges on money borrowed. You only pay back what you borrowed.

How Much Money Do I Need?

If you’re convinced enough that you need this loan, the next question to answer is the exact amount you’ll need to apply for.

What’s the purpose of the loan?

This will provide the perfect answer you need to determine the exact loan amount. If you’re taking a personal loan for personal purposes, coming up with an exact figure might be confusing.

As humans, we are sometimes greedy and always want more. Don’t be tempted by the higher loan offer you receive from your lender. Apply for what you really need and consider how to pay back your loan on time.

Can I Afford to Pay Back?

This is an extension of the question above.

Despite knowing the amount needed to solve the financial needs at the moment. It is important also to evaluate the loan repayments process and your ability to pay back on time. Consider only borrowing what you can comfortably payback.

However, keep these factors in mind when evaluating the payback process. The amount borrowed plus interest rate and loan length period.

Most importantly, your income status at the moment will determine how possible and convenient you can pay back your loan on time.

If your business is not doing good financially at the moment, you’ll want to think through before taking the loan.

All these factors will affect how you pay back your loan in the long run and on time.

What Are the Interest Rate and Overdue Charges?

The interest rate you pay on a loan offer depends on some factors like your credit score, loan amount, loan period, etc. It is important to look into this area too when taking a loan.

Either you’re taking a personal loan for self-purpose or you’re taking the loan for business purposes, you’d want to take a loan with the best possible lower interest fee. This is good for you as a higher interest fee loan means more money you’re going to pay back to your lender.

Again, consider reading the terms and conditions for taking the loan. Especially, the part that deals with late repayments penalty. Some lenders charge exorbitant fees for late payment. You don’t want to go over paying far more than what you actually bargained for.

For some lenders, a shorter loan period attracts lower interest fees, while a longer loan period attracts a higher interest rate. Though, this area is for you to decide which option best fits you. You decide what you want.

Are There Additional Fees or Charges?

Apart from the loan interest rate, which is by any means obvious to the borrower. Some lenders charge additional fees like the origination fees, service fees, etc. This could add up to your total loan repayment amount or deduct from the disbursed loan amount in many cases.

Before you accept and take the loan offer, make sure to have read and understood all fees attached to the loan offer, so you can decide if it worth taking or not.

Conclusion

Though, taking a loan (either personal or for business purposes could be a personal thing). There are times when taking a loan is the best possible financing option to take.

Despite this, it is important to look into things more intelligently and to avoid applying for a loan you may not be able to pay back on time.

Not paying back your loan on time regularly will overtime affect your credit score. This is something you don’t want to happen.

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Shamsudeen Adeshokan

Shamsudeen Adeshokan

Shamsudeen Adeshokan is a professional blogger, affiliate marketer and the brain behind the blog, CyberNaira - where he writes about blogging tips/tutorials, SEO, Affiliate marketing, social media marketing and make money online tips.

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