Taking out a loan can be a huge decision. There are so many factors to consider that it can feel overwhelming; you might not know where to begin or whether you should even think about getting a loan. The fact is that if managed correctly, a business loan can be a tremendous boon for your financial health, but you need to approach it in the right way to reap the benefits properly. Here are 10 things you should consider when you’re thinking of taking out a loan.
1. Your financial health
It might sound obvious, but first and foremost, think about your financial health when taking out a loan. Are you going to be able to pay it back? Will making regular repayments on the loan leave you in a worse position than when you started? Loans aren’t a good band-aid for long-term financial issues; if you can’t make repayments, you may be doing more damage to your bank account than you’ll repair by taking out the loan in the first place.
2. The provider
Not all loan providers are created equal. Each provider will have slightly different terms and approaches to consider, so make sure you’re well-informed before you actually make a decision. Taking out online personal loans isn’t a small decision; it could potentially have huge ramifications for your financial future, so do your research into the provider you’ve chosen. You can also check out online reviews to make sure that they’re above board.
3. The type of loan
There’s a wealth of different loan types out there, and they’re all appropriate for different circumstances, some of which can overlap. It pays to know exactly what kind of loan you’re getting into so that you don’t make a mistake this early on in the process. Do you know the difference between unsecured and secured personal loans? What kind of provider are you going with? You should know these things before you put your signature on anything.
4. The terms
Nobody likes to read terms and conditions; it’s a well-documented fact that they’re boring, labyrinthine, and difficult to get through. However, if you want to make sure you’re getting the best deal possible from your loan, reading the Ts & Cs is a necessary evil. You can break it down into bite-sized chunks; you don’t need to read the whole thing at once, provided you gain a general understanding of the content. Just make sure you don’t neglect this dull but necessary duty.
5. Your support network
Before taking out a loan, you should think about whether you have a safety net to protect you just in case it falls through. That means family, friends, and anyone else you can turn to if you struggle to make repayments. If you don’t have that support network, it might be worth reassessing just how desperate you are for the money that the loan will provide. Again, you could be setting yourself up for more harm than good if you can’t make repayments promptly.
6. Your credit rating
Very often, credit rating plays a huge part in whether a lender will approve you for a loan or not. If you don’t have a favourable credit rating, you may find yourself struggling to get a loan, because lenders won’t want to give you money they think you won’t be able to pay back. There are lots of different ways you can improve your credit rating, so even if it is poor, it’s not the end of the world. Just make sure you go into your loan application armed with this knowledge.
7. Your collateral
If you’re taking out a secured loan, then the provider will want you to offer up an asset as a guarantee if you don’t manage to make a repayment. Mortgages are actually a type of secured loan; if you can’t make repayments, your home may be in jeopardy. The same could be said of car financing. If this is the route you want to go down, you’ll need to make sure you have the collateral; this might not be the right option for you if you just want cash without any strings attached.
8. The repayment plan
Lenders will want to see their loans repaid promptly. You’ll need to create a repayment plan in order to accommodate this. In many cases, the lenders will do this for you; they’ll outline exactly when they want you to make repayments, as well as the potential consequences if you don’t manage to do so. However, if the lender is more free-form, then it’s up to you to create your own plan. This isn’t as difficult as it sounds; just apportion part of your monthly income to the loan, and voila – you’ve made a plan.
9. The interest rates
Your loan will almost certainly come with an interest rate attached to it, and it’s very important to know what this is. The interest rate dictates how much you’re paying above and beyond the original value of the loan; this is how lenders make a profit, and in some cases, interest rates can be extortionate, so you should make sure your loan has favourable rates for you. It may be that you can handle high interest rates, but it’s usually better to plump for something with a lower rate.
10. The purpose of the loan
What exactly are you taking this loan out for? Do you need financial aid, or is it to pay for a project like a holiday or some DIY on your home? Whatever the case may be, knowing why you’re taking the loan out – and constantly reappraising this aspect if need be – could help you to put things into perspective, especially when it comes to repayment. Always keep in mind the reason for your borrowing, and keep asking yourself whether this is the right option for you.