Questions to Ask Yourself Before Borrowing Money
It’s important to borrow money responsibly. Borrowing too much can leave you facing serious financial and legal trouble, so you want to make sure you aren’t overextended. If you are considering taking a loan from the bank or your local payday lender, here are some factors you should stop to consider first.
Is it a Need or a Want?
You should only borrow money when you truly need it. Borrowing the money to get the heater in your home fixed is a need. Taking a loan so you can buy a new gadget is a want. While it’s okay to borrow money to make larger purchases, it may be better to save the money and pay cash for it at a later time. Before deciding that financing something you want is wise, consider these other factors.
Will You be Approved?
You should know how healthy your credit looks. If you are overextended or have a history of late payments, then you may not be approved through traditional lenders. You can go through a payday lender online to get the money you need, but it will have to be repaid quickly and you may face higher fees. Before deciding that you can borrow the money you need, stop and ask yourself what kind of interest rate and terms you are likely to receive.
How Much More Will it Cost?
The cost of borrowing matters in the long term. Higher interest rates and shorter terms will leave you with high payments that you might have trouble making. Even if the interest rate is low, you should still consider how much the purchase will cost you by the time you pay off the loan. Use online calculators to determine what your actual cost of borrowing will be, or ask the lender to provide you with the exact figure. With this information in hand, you might decide that borrowing the money isn’t very appealing.
What Amount Can You Borrow?
Knowing how much you can afford to pay back is vital to determining what you can safely borrow. Make a list of your income sources and a list of all your expenses. Be sure to include annual expenses and emergencies in your calculations. Deduct your current expenses from income to determine your disposable income. If the money isn’t there to make the monthly payments, then you should not borrow the funds.
Is There Another Option?
There is usually another solution, but you may have to search for it. The answer might be to take a second job and pay off some other debts. You might look around your house and discover a treasure trove of items you can sell for the funds. Look for a way to make the purchase without putting yourself further in debt. It’s the right choice for your short-term financial health and long-term security.
Once you have honestly reviewed your situation, you can make an informed decision about whether you should take a loan. If you move through all these steps and still feel that the loan is the right decision, then you should proceed with your application. However, if you finish the process and feel that you can hold off on the purchase or find another way to make it, then you should not take the loan. The decision may be hard to come to now, but you will be glad you were cautious later.
Guest author Tim Flores is a freelance blogger and is writing on behalf of parrotloans.co.uk.