When is Taking a Personal Loan a Good Idea?

Banks will often allow people to take out a personal loan especially if they have a car or home to secure it on. They will lend thousands of pounds which is often paid back over five to ten years. The term and amount will vary as will the interest rates. Often the interest rates will be lower for those that have a better credit record.

It is worth thinking hard before taking out a loan. Consider whether the item that you are buying with the money is worth it. Calculate how much it will cost you if you take out the loan in full. Calculate the cost of the fees and interest (based on the current interest rate) and see how much more it will cost by the end of the term to buy the items that you are using the money for. It may make you think that it is not worth it. Loan websites such as Emu.co.uk will be able to help with this.

You should also consider whether you can save up and pay for the things instead of getting a loan. Obviously this will depend on how soon you need the item(s) but it will be a lot cheaper to wait and save up than borrowing the money.

It is not easy to decide whether the loan is a good thing to take or not, but thinking about the total cost can help you to make the decision particularly if the item that you are buying is a luxury that you can wait for.

If you are using the loan to pay for necessities, then you may feel that you do not have a choice, You need the items and if there is no other way to pay for it, then you may feel you need the loan. However, before you go ahead and apply make sure that you do a few last minute checks. Make sure that you do not have enough money in savings to pay for the item. Compare the costs of different personal loans to make sure that you have the best deal and compare loan types to check whether there is a better loan available for you that could suit your needs and is cheaper. Obviously rates vary and these will change during the course of the loan term, but the best that you can do is to find the best deal when you take out the loan and hope that it continues to be the best. If you borrow over a long term, then you may be able to switch lenders if there is a better deal anyway.

It is also worth thinking hard about repayments. Consider whether you will be able to keep up the repayments for the whole term of the loan and what might happen if you cannot. It can be wise to consider taking out insurance that pays it for you if you cannot, but the terms of these can be quite tight and it may only be in very specific circumstances that it will pay out, so watch out for that. If there is more than one income coming in to the household, that will reduce the pressure as even if one person cannot work then there will be someone else that can. Consider whether they will be manageable even in your current circumstances. If you already struggle to pay for things, then the monthly repayments could be hard and you may find that you go through tough times trying to make ends meet and you have to decide whether you think that it is worth it.

Think about how you will feel knowing that you have an outstanding loan. Some people can just take it in their stride but there are others who will feel the pressure of it a lot. If you have never borrowed money before, think about what impact it might have on you and how you may feel if you Know that there is a debt waiting to be paid.

Consider the economy as well and whether you think it is a good time for a loan. Think about whether you think interest rates might go up as borrowing will get a lot more expensive. Unless your loan has a fixed rate, it will become more expensive if interest rates go up and this could make it a struggle to repay and will also mean that it is much more expensive. Also if it is likely that there will be job losses then you may be at risk of not having so much income to be able to afford the repayments.

It might all sound a bit dramatic, but there are people who get into big financial trouble because they take on too many debts thinking they will be able to cope and then circumstances change meaning that they cannot. It is not a nice situation to be in and so if you can protect yourself against being in this situation you will be a lot better off.

Leave a Reply