4 Questions to Ask Yourself Before Applying for a Loan – What to KnowApr 09, 2020
No matter what loan you want, whether it be a short-term loan or a personal loan, it’s always a good idea to do some research beforehand. After all, no loans are the same, and there will always be slight differences in each loan that will make it either a good or bad choice for you.
As such, you should also ask yourself a few questions before obtaining any kind of loan. Not only is this vital to know how much funds you actually need or whether you can repay the debt, but it’s also essential for helping you figure out if you need the loan in the first place.
Here are four questions to ask yourself before obtaining a loan:
1. Do I really need a loan?
“Do I really need this loan?” That’s the first question you should always ask yourself. Remember, when you take out a loan, you put yourself in debt. Of course, while some debts are bad, others aren’t. However, regardless of whether it’s good or bad, being in debt isn’t necessarily the most pleasant of situations. Because of this, it’s vital that when you do take out a loan, you have good reason for it, one that results in you achieving your goals, such as financing your education or starting a business.
In other words, ask yourself if the loan is for a want or for a need. If you need to cover your education, then that’s definitely a good reason and falls under “need.” However, if you want to buy a sports car, then that’s not the best reason. Again, either way, you’ll still be in debt, so make sure that you need the loan and that you can repay it.
2. How much money do I need?
When it comes to figuring out how much you need to borrow, a good rule of thumb is to borrow just enough to cover the payment. That’s because you’re paying interest when you are covering the loan, meaning that the more you borrow, the more you end up paying back.
With that said, always do the math to see how much you’ll be paying for the money you’re going to borrow and whether you’re okay with that added amount.
3. What type of loan should I choose?
Another question you’ll have to ask yourself is what kind of loan you should be opting for. With so many loans available—especially if you have a good credit score—it might be a little harder to choose a loan.
In most, if not all, cases, you’ll be opting for the loan with the lowest interest rate, or one that suits your needs best. For example, if you wanted to borrow a large sum of money and know that you’ll take a while to pay it back, a personal loan is an option. However, if you want to borrow a small amount of money in which you can pay back quite quickly, a payday loan is an ideal route to go.
That said, some of these loans may or may not apply to how you’re going to use it, so make sure that it is available as an option, too.
4. Can I afford to pay off the loan?
No matter what loan you decide to take out, you should always pay it back, preferably on time, too. Otherwise, your credit score will drop, forcing you to opt for less-than-ideal loans with higher interest rates.
That said, always be diligent with how you spend your money. When you take out money, don’t use that as an excuse to borrow more. Remember, you need to pay that money back, and so for any loan you take out, be sure that you can pay it off as well.
In summary, before you take out any loans, ask yourself the above questions. That way, you borrow the right amount of money in the right type and can pay it back on time still. That said, always take your time when it comes to researching a loan. Sure, the promise of receiving money is always exciting, however, if you do it mindlessly, you’ll end up in serious trouble. In other words: loans are great for personal finance, but be patient and be careful when applying for one.
Are you looking to apply for a personal loan in South Africa? Get in touch with us to see how we can help.