According to the Reserve Bank of Australia, as of 2020, personal loans debt stood at 146 billion. We’re getting into debt more than ever before.
Borrowers are getting loans for a variety of reasons, such as consolidating debts or funding renovations. However, it’s important to think carefully about whether you really need the loan.
There are many things to think about before getting a loan, and this post will help guide you through that process. Read here for nine important things to think about before getting a loan.
1. Your Credit Score
Your credit score is an important part of getting a loan.
Lenders look at your credit report to determine whether you are eligible for the loan and if they can trust you with it. If your financial history looks questionable or recent activity on your account that could be considered irresponsible, then lenders will think twice about giving you the money.
Before applying for any loans, ask for your free annual copy of your three credit reports from Equifax, Experian, and TransUnion to ensure all information listed is accurate.
A good credit score is considered to be around 700 or above, so getting a loan will not affect your credit rating if you have an excellent history.
If you are currently struggling with poor credit, getting a personal loan may negatively impact it further. It’s best to improve your current situation before applying for any new form of finance.
What are the measures you can take to fix your poor credit score?
If you have missed repayments, make sure to contact your lender as soon as possible and come up with a repayment plan.
Pay for things in full instead of getting items on credit if at all possible. This ensures that there is no outstanding debt on your account, which can impact your score negatively.
Don’t apply for multiple loans or personal finance options within a short period of time. This looks irresponsible from the lenders’ perspective. Instead, pay off debts before getting new ones.
2. Your Financial Situation
Once you have a good credit score, it’s time to assess your financial situation.
There are many different personal loans available on the market with differing interest rates and repayment terms. It’s important to choose one that suits your current circumstances. So getting someone else’s opinion is beneficial before taking out a loan.
First, decide what you need the loan for – renovation or consolidation? This will help narrow down which type of personal loan would be best suited for your needs.
Next, work out if now is really the right time to apply for a new finance product. Will you be getting a better deal?
How will this loan impact your finances in the long run? If getting another form of finance means no money left for other personal expenses such as groceries, then it’s best to hold off.
Getting a loan now can lead to further problems down the track, like missed repayments and defaults. And these will only exacerbate any current financial issues.
If you are currently struggling with debt or have not yet got on top of things, consider getting professional advice getting a personal loan.
3. The Repayment Period
Personal loans generally come with a repayment period of one to five years. This is largely determined by your credit score and the annual interest rate you are getting charged. There are also other factors like employment status and income levels.
Longer repayment periods mean that you will be required to pay less each month. But the total amount paid over the years is more than if getting a shorter repayment term.
The monthly repayments are generally fixed, which can make budgeting easier for some people. But it’s important to consider whether this suits your needs or not before getting a personal loan with set payments. You might have other plans in mind and want flexibility from your finance option, so getting another type of loan may suit you better.
A shorter repayment period may mean higher monthly repayments. But you can pay it off faster, and the total out-of-pocket cost is less in comparison to getting a longer repayment term.
4. Annual Interest Rate
The annual interest rate of getting a personal loan is another important factor to consider.
Generally speaking, the lower your credit score, the higher the annual percentage rate (APR) which you will be charged. This ensures that people with bad credit are not getting preferential services compared to those with good or excellent scores.
However, this means if getting an expensive loan, it’s best to improve your poor history before applying for any financing. Or at least wait until you can get one with reasonable rates.
It also depends on what type of personal loans are available in your area and how many financial institutions offer them. There might not be many options available in some instances, so getting a higher-interest loan can be inevitable.
If the APR is too high, getting a personalized loan may not be the right choice for you. It might make more sense to find another solution, like increasing your credit card limit.
5. Fees
Getting a personal loan isn’t just about interest rates. Some other fees need to be considered before getting one.
These can include:
- Application fee
- Annual fee charged each year on your account
- Monthly service fee if you miss repayments
- Nonpayment or late payment penalty charge
All of these additional costs may seem small, but they will add up over time. So it’s important to consider how much you want to pay for getting a personal loan from the beginning.
If these expenses are too high, getting a different form of finance might be better.
6. How Disciplined Are You?
It’s easy to get a personal loan, but making the repayments is another story. This means getting a credit history isn’t always helpful because you might still default on getting your money back if not careful.
Looking at your current spending habits is the best indicator of how well you will handle getting a personal loan and making repayments.
If there are enough funds left over each month for other expenses like groceries after getting all your bills paid, then the chances are good that getting this kind of finance can work out in the long run. But if you don’t have enough money for rent, food, or other necessities each month, then getting a personal loan is likely not the best idea.
For those who struggle with spending more than they earn and are easily tempted to make big purchases when payday arrives, it’s better to avoid getting this kind of financing altogether.
7. Can You Get a Better Deal?
If you need to get a personal loan, you must compare the different lenders in your area to find the best deal.
Comparing lenders is a good way to ensure you are getting the lowest interest rates and fees possible for your loan. It also ensures that you can avoid getting ripped off too. It’s important to do this before making any decisions because choosing the wrong lender could cost you hundreds if not thousands of dollars in unnecessary expenses over time.
8. Do You Have Any Other Options?
Depending on how much money you need, getting a personal loan might not be the best choice.
For example, if there is only $500 or less needed for something specific, it’s probably better to ask family members or friends rather than going through all of this paperwork and bureaucracy. It will take more time but asking someone close could get the job done faster while saving you some fees in the process too.
But what are your other options? Other financing solutions have lower rates and don’t require as much documentation either. For instance, an overdraft from your bank provides customers with quick access to cash at no cost when they meet certain criteria.
The bottom line is that getting a personal loan is not always the best solution. It’s important to weigh alternative options first to make sure you are making the right choice.
9. Can You Keep Your Spending Under Control?
Getting a loan will only be good for you if you can keep your spending under control. If not, then this form of financing won’t work out in the long run and will end up costing more money than what it’s worth overall.
You have to make sure that getting another kind of finance doesn’t tempt or encourage impulsive purchases because these loans are very easy to get approved, making them even more dangerous.
You should only spend the money on what you need and not whatever is desired.
If you’re convinced that you need a loan, consider getting the Plenti Personal Loan.
Getting a Loan Is Probably a Good Idea
Whether you need short-term or long-term financing, getting a personal loan should be your first option. That’s because getting this kind of finance has low rates and can help cover expenses like buying a car, paying off debt, or getting an education.
We hope this blog post has helped you decide if you should be getting a loan soon. For more interesting topics, keep reading our articles.