Borrowing money is a big life decision that may have a significant impact on your finances. Choose the right loan, and you’ll be able to take on an unexpected expense with confidence. But choose the wrong one, and you may end up struggling to repay a loan you can’t afford.
Before you get in too deep, check in with this list. Here are five questions to ask yourself before you take out a personal loan or line of credit.
1. What Do You Need it For?
There’s no one way to borrow money. There are several different kinds of personal loans and personal line of credit options available, and they’re all designed to help you with different things or situations.
Do you know the difference between payday and installment loans? What about a line of credit?
Let’s say your car breaks down unexpectedly a week after you cleared out your savings account. A personal line of credit may be an option. It’s designed to help with unexpected emergencies, even if you have bad credit. Open a new tab to see your options online at CreditFresh, where a bad credit score may not hold you back from getting the cash you need.
2. How Much Do You Need?
This might be the easiest question to answer if you’re getting a line of credit or loan for a specific, one-time bill. But it may be a challenge if you need it for on-going work — like if your mechanic takes a few attempts to get your car back on the road.
Just be wary of requesting more money than you need. If your budget isn’t properly prepared, it may be hard to pay your loan on time.
3. What is Your Timeline?
Each financial institution may have different schedules dictating how quickly they review your application, send word if you’re approved, and disburse your funds.
Knowing how quickly you need to receive your money will help you search out a financial institution that works on your timeline.
4. What Do You Need to Qualify?
Financial institutions want to make sure you fit the mold of their ideal borrower before they approve your loan. They do this by setting specific eligibility requirements that serve as a basic cut-off for those who can and can’t qualify.
These requirements may vary greatly between financial institutions. That being said, they generally check in to make sure you are of legal age, live in the state they are licensed to operate out of, and have a valid bank account. They may also require you to have a minimum credit score and income to apply.
5. What Are the Rates and Terms?
Your rates and terms tell you a lot about your loan’s cost and repayment schedule.
Rates include information about interest, finance charges, and other fees that may add to your principal (the flat amount you borrow). You’ll be able to calculate the true cost of your loan with these fees.
Terms will tell you how long it will take you to pay off your principal and fees. More still, it will break down your payments into a schedule, so you’ll know when each payment is due.
Question Time Starts Now
The faster you find the answers to these questions, the faster you’ll be able to shop around for a loan that meets your needs. So what are you waiting for? Work through these questions right away.