Loans can be very useful. At certain points in our lives, we’re all liable to find ourselves dealing with financial hardship or uncertainty, and the services of a trustworthy loan provider may, in these instances, make a significant difference. Likewise, there are certain kinds of “loan” that just about everyone “needs” and ends up taking out. Mortgages, for example.
But by no means does that mean you should be reckless when taking out a loan. There are predatory lenders all over the place, and even when dealing with non-predatory lenders, lives can often be ruined by people taking out loans at inappropriate times, and for inappropriate reasons, and then failing to make their repayments.
It’s important to relax and get your head straight before taking out a loan.
Here are a few things you should do before taking out a loan:
How much will you need
It is important to have a purpose for the amount of money you are about to loan. Sometimes you may need personal loans to give you that additional amount of money for completing DIY project or buying a car. Make sure the monthly repayment amount is something you have considered and can afford.
Make sure you understand all of the terms inside and out
In recent times, many loan providers have been outed for their predatory practices — including obscuring and hiding important information about interest and repayments, in order to increase the odds that people would miss repayments and end up having to pay incredible amounts of money as a result.
Before taking out a loan, always look for companies who display a good deal of transparency, and make sure that you understand all of the terms inside and out. Some companies such as Fast Loans UK will display their % APR quite clearly and prominently. With other companies, you’ll need to do a bit more digging on the exact details.
When it comes to taking out a loan, in particular, don’t sign up for anything that you don’t understand.
Investigate borrowing the money from friends or family first
If you find yourself short of money for an unexpected or emergency expense, such as having to cover the repair costs on a car that has suddenly broken down and that you need in order to make it to your job, then a short-term loan might help you out.
But, it might also be the case that you could borrow the money from friends or relatives, instead, and bypass the process of having to get a formal loan out, altogether. Assuming you and your lender are both trustworthy (you should, of course, be diligent about repaying the money, even if it’s not a conventional “loan”), this is likely to be a less complicated process than going through a lending agency. Presumably, there will also be more trust and understanding with a relative or friend than with a third party.
Have a clear plan in place for what you’re going to spend the money on, and how you’re going to handle repayments; avoid gratuitous spending
One of the absolute worst things that people can do to themselves, financially, is to take out a loan without having a crystal clear idea of what they’re going to spend the money on, and how they’re going to handle repayments.
Any loan you ever take out should be taken out with a clear purpose in mind, and this should be combined with a clear repayment strategy. If you’re not mindful of your spending, and have gratuitously burned through your monthly paycheck, taking a loan out is likely to be only an extension of your bad relationship with money.
Always avoid gratuitous spending when you’re using borrowed money.