Ask Yourself These Questions Before Taking a Loan

Money may not solve all our problems, but it can certainly solve many of them. Unfortunately, more than half the population of the world lives on less than $2.50 a day, and 80% lives on less than $10 a day. Most of us barely manage our expenses. If we have to face an unfortunate situation which requires extra finances, it creates additional problems for us. Such times will keep coming in life. We can either earn enough to be prepared or take a loan to go through them. If you find yourself in such circumstances and about to take a loan, make sure you first ask yourself these questions.

Do You Really Need This Money?

Many people have a different definition of what they call need. For some people, it’s a need when they don’t even have money to feed their kids. On the other hand, some people need a better car, a better house, or better clothes for an occasion. Whatever your exigency, ask yourself if you really need this money. A loan isn’t something you should casually take. It has to be returned with interest, and some loans stick with you to the grave. Go for the loan only if you think the ‘need’ is more important.

Will You Be Able to Pay Back?

Before you take a loan, plan how you will pay it back. Banks will ask you the same question no matter where you go. It is an important question because the loan with keep increasing with compound interest until you pay it back. You may end up with more interest than you had borrowed. If you know you have a source to pay off, then it shouldn’t be very big of a deal. On the other hand, without any source or plan, you may not even get a loan. If you can’t pay back then maybe you shouldn’t take that loan.

How Fast Can You Pay?

According to SmartLoan (a loan directory with listings on legal moneylenders, banks and other financial institutions), you may be able to save money if you can pay the loan faster. On the contrary, you may incur more charges or fees if you make your payment after the due date. Your installments are divided according to your ability to pay. The bigger payment you make, the lesser time it will take to complete and save you money from the interest rate. Remember that you will be asked this question when you apply for a loan.

What If You are Unable to Pay?

Have you thought about what will happen if you can’t pay it off? It’s better to think now than regret later. It’s understandable that you might be going through a difficult situation, but ponder if there is a possibility that it can get even worse if you are unable to return the loan. Think about the future and see all the possible choices you have. If the ‘after loan’ situation is worse than the other options, then you might want to cope with your current position in another way. You must answer yourself whether you are at a loss or gain with this loan.

Adam Torkildson