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If you are falling behind on your bills or you want to make a purchase but do not have the funds readily available, you may be tempted to take out a loan. It is true that a loan may be able to provide you with the funds you need immediately, but you must consider the long-term effects of obtaining a loan. A loan requires a commitment from your to repay the loan, plus interest, over the upcoming weeks, months, or even years.
This decision should not be made lightly and requires you to consider all aspects of obtaining a loan before making your final decision. Below is a look at several questions you should ask yourself before making the decision to take out a loan.
Do I Really Need It?
If you are taking out a loan to make a special purchase, the first thing you need to ask yourself is if you really need the goods or services, or if you just want them. If it is something that you really want, but do not need, you should consider saving up the money to make the purchase rather than taken out a loan. Keep in mind how much extra you will be paying in interest if you choose to take out a loan.
Can I Afford It?
You also need to ask yourself if you can afford to repay the loan, you want to take out. If you do not currently have a household budget, now is the time to make one. You need to track where your money is currently going and make sure you have enough money left at the end of the month to make your loan payments and still pay all your other bills. If you cannot work out a way to fit the loan repayments into your budget and still have enough for your bills and savings, you should not take out a loan at all because it will only put your further behind financially.
Do I Have Any Alternatives?
You should never consider taking out a loan until you have explored all other possible options. If you are considering a loan to pay off some of your outstanding bills, try talking to your lenders first. You may be able to set up an affordable payment arrangement that will eliminate the need to take out a loan. You may also qualify for a low interest Budgeting Loan from the government or a Community Care Grant from your local council to help cover some of your costs. You may want to contact a financial counsellor who can help you explore all your loan alternative to determine which the best option for you is.
Have I Reviewed the Terms of the Loan?
You should never agree to a loan before completely reading through the terms and conditions of the loan. You must know exactly what your interest rate will be, what the repayment terms are, and what happens if you miss a payment. If possible, you may want to speak to a financial counsellor before obtaining any loan. The counsellor can help you understand the terms of the loan and help to answer any questions you may have. Most importantly, the counsellor can alert you to any problems, or possible scams, within the loan.
As you can see, a lot should go into determining if you should, or should not, obtain a loan. If you determine that a loan is the best option for you, be sure to shop around and find the one that offers you the best interest rates. Also, be very leery of any lenders promising fast money without any credit checks. These kinds of loans, such as payday loans, include varies hefty fees and high interest rates that will require you to repay a significant amount of money.