The top things to know before you take out a loan
Taking out a loan can be a great way to achieve things that you want or need to do but they are not something to be taken lightly. There are important factors to consider and this article aims to help you to think carefully about taking out a personal loan.
Why do you need to borrow money?
This is one of the first things to consider and this can lead to some reflection as to whether a loan is the right course of action. The conclusion may spur you on to enact different plans, such as building up some emergency savings to be used to pay for unforeseen expenses without having to sign up for a loan agreement.
You need to consider whether you really need the loan or whether there is another better option to achieve your desired outcome.
Where to borrow from?
You will need to think about what sort of loan agreement you need and, then, where you should go to source this. One of the fastest and simplest ways to obtain a personal loan is usually via an institution you already bank with.
This may not be the most cost-effective option, however, and so in a world where so much information is available online, it is always a good idea to do your research and shop around.
Remember to consider financial products like for like. This means comparing the terms and conditions as well as simply the loan amount and APR.
How much should you borrow?
You need to consider this very carefully and not just in terms of how much money you want but the amount you can realistically afford to pay back – both immediately and in the future.
Your considerations need to go beyond looking at the APR and consider the TAR, or total amount repayable. This will help you consider whether it is a cost-effective and realistic option for you.
You need to know that you can make the repayments in light of other financial responsibilities and have some flexibility if circumstances should change in the future. You also need to consider potential changes to interest rates if this is likely to affect your choice of loan agreement.
If you have already borrowed money and find yourself in difficulty, help is available. One of the first places to start if you need help is with Citizen Advice.
What is your credit score?
This is an important consideration as it will influence the range of products for which you will be eligible. In general, you will need a good credit history and score to qualify for competitive interest rates on loan agreements.
Whether you are considering taking out a loan or not, you need to be aware of your credit score. There are plenty of free tools out there and you can also source a free copy of your personal credit report from the credit bureaus TransUnion, Experian, and Equifax.