5 Tips to Inform your Borrowing Choices
Borrowing Choices: Many of us need a helping hand financially at some point in our lives in order to pay a bill, deal with an unexpected expense or just to get by for a short while. Taking out a short term loan has a lot of benefits that can make a big difference but there are some things to consider before going ahead.
Here are 5 tips to inform your borrowing choices to ensure you make the right decision when taking out a loan.
Think about why you need a loan
Considering the reason why you need to take out a loan plays a key role in making the right financial decision for you. If you are in need of emergency funds then a short term loan can really make a difference to get you out of a tricky situation. Before hitting ‘go’ and taking out a loan, see if there are any other ways to can gather together the money, or if the payment can be delayed until you are able to pay without getting into debt.
Consider the amount you want to borrow
If you have decided that taking out a loan is the best option for you, then it’s important to think about the amount you need to lend. Before you look at the APR (annual percentage rate) attached to the loan, review the total figure you’ll have to repay. This will equal the amount you have borrowed plus the interest that will be added throughout the duration of the repayment period. You can then budget your monthly outgoings to include the monthly payment without being caught short.
Shop around for the best deal
It may seem like the easiest and most convenient option is to use your existing bank or building society to take out a short loan. However, there are so many other providers available today who may be able to provide a better deal. Always check they are regulated by the Financial Conduct Authority and do not just take the cheapest option available. Get together a 3-4 different options and weigh up which one suits you best.
Take your credit score into account
Your credit score and history will play a big role in deciding the interest rate and amount of money you will have access to. Before you take out any loan, it makes sense to check your current credit score if you don’t already know it. Experian, Equifax and TransUnion are the three main credit agencies and each can provide a free credit report. Even if you decide not to take out a loan, being aware of your credit score will prove extremely useful in the future when it comes to applying for a credit card, or even taking out a mortgage on a house.
Read the full terms of the loan
Aside from knowing the APR and total amount repayable for the loan, read through the terms to see if there are any additional costs involved. These can be things like hidden loan processing fees, prepayment penalties (for paying off the loan early) and late payment fees. Taking out a loan is a contractual obligation that means if you break the terms, there will be financial penalties of some kind. And always remember, defaulting on a loan can have very negative effect on your credit score.