When money is tight and you have no reserve, where do you turn to get your hands on cash? If you’re like most people, you look to loans for relief. Though borrowing money can sometimes be the only way to cover the expenses of an unexpected circumstance, it is not to be taken lightly. Every time you borrow funds your reputation, credibility, and financial future are on the line. Failure to borrow and repay funds diligently could result in more debt and a difficult time getting help in the future. Below are a few questions you should ask before taking out a loan?
What is the loan for?
The first thing you want to determine is the purpose of the loan. Not simply because lenders ask this question, but because it can ultimately determine whether you really need the loan in the first place. It can also help you determine which type of loan is best suited for you. If you were looking to pay a car repair, you might opt for online installment loans because they have a quick decision time and high approval rate. However, if you were a business owner who ran into a slow period, you might be better off applying for a small business loan.
What Options Are There?
There are various loan products out there and each of them serves its own purpose. Review all of your borrowing options prior to selecting a lender and agreeing to the loan terms. Some of the most common types of loans are personal loans, installment loans, business loans, and bad credit or debt consolidation loans.
How Much Can You Afford?
A lot of times, people get in way over their heads when they decide to borrow more money than they can afford to repay. So, before applying for a loan you need to have a clear understanding of how much you need to borrow, what the interest and associated fees would be, and compare that to your budget. For instance, if you needed to borrow $1,000, and the loan you’re looking to get approved for had a 25% interest rate, you’re looking at repaying an additional $250 in interest. Depending on the length of the loan you could be asked to pay several hundred dollars per month. Can you afford this in your monthly budget? If not, you need to consider borrowing less or finding another financial resource to deal with your problem.
What Are My Responsibilities?
Borrowers make a huge mistake of simply signing loan documents without having read through them. Obviously anxious to gain access to the funds, they miss important details that end up causing them to be broke later on. Before signing a loan agreement, review the terms and your rights and responsibilities as a borrower. This can include learning about repayment terms, penalties, and late fees. You should be clear on due dates, withdraw amounts, and other information pertaining to the loan. If you’re not clear on something, you should ask.
What if I get in a jam?
Last but never the least, you should ask yourself what you would do if you find yourself in a jam? Once you’ve borrowed the funds and used them, you’re obligated to repay them. So, should something else come up in the meantime and you’re unable to repay the loan, you should know ahead of time what your options are. Some lenders have flexible repayment options, others will work with you to come up with a better method. If necessary, you can even find ways to cut back or earn some extra money until you’ve repaid the loan.
Borrowing money might be a convenience, but only if you do so responsibly. Before making the decision to take money from a financial institution, it is imperative to make sure that you’re well-informed and prepared to take on the responsibility. This includes making sure you really need a loan, knowing your options, being sure you can afford it, and understanding your responsibilities as a borrower. By doing your due diligence ahead of applying, you can insure that you’re making the best choice for your current circumstances.