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1. WHY DO I NEED A LOAN?
Not only should you ask yourself this because of prudence, but also because your reason for needing a loan can help you decide which type of loan you need to apply for. Different types of loans have different interest rates and payment terms and before you take on the wrong type of loan without reason, research your options.
2. DOES MY BUDGET ALLOW IT?
This is one of the most important questions. Getting a loan isn’t just getting money and then forgetting about it. You also need to make payments and in some cases for a very long time, like mortgages. If you can’t afford to make payments then it’s not a good idea to get a loan in the first place. So, sit down and assess your budget to deduce whether you can actually make your payments on time.
3. WHAT’S MY CREDIT SCORE?
Lenders offer the best interest rates to those with a good credit history. Check your credit score and work on improving it if it’s not good before you apply. You’ll find lenders who will give you a loan despite a bad credit score, but the interest rates will be exorbitant.
4. WHAT LENDER IS BEST FOR ME?
This will depend on your specific situation. Take your budget and affordability into account first and foremost and then proceed to consider other factors. It could be that you have a perfect credit score and a well-paying job. You’re bound to get your loan approved at amazing interest rates in such a situation.
On the other hand, you could have a pretty bad credit score and you’ll have to speak to a few lenders before you find the right match. Every now and then you might find a lender who offers reasonable rates even if you have a less than perfect score, like Everyday Loans. They don’t call themselves “Everyday Loans – the friendly UK lender” for nothing.
5. HOW LONG DO I WANT TO BE PAYING MONEY?
Loans usually come in fixed terms of 3, 5, 10, 15, 20, 25 or, at most, 30 years. Different terms have different payment terms and interest rates, with those on the longer-range having variable interest arrangements. This is where the interest rate will stay fixed for a certain amount of time, and then come up or, if you’re lucky, down to the market rate.
6. WHAT IF I DEFAULT IN MY PAYMENTS?
Defaulting on payments can result in a variety of issues, from penalty charges to repossession to full-fledged legal action. You need to read the terms of your loan agreement carefully so that you’re aware of the consequences if you default on a payment. Some loan arrangements might prescribe a nominal fee that you would easily be able to bear whereas others might prescribe a hefty penalty which gets higher each time you miss a payment.
Regardless of the consequences, you need to remember that defaulting on your payments will negatively impact your credit history. This will make it difficult for you to borrow money in the future when you might really need it. So, make sure you always pay on time!