It is a new year and for many households, January can be a time of feeling the pinch. An early pay cheque in December and an expensive festive season means that you can go 6 or 7 weeks without any income from work – and this can leave some households worse off and counting the pennies until their next pay date.
Each time that you borrow money or take out a loan, you need to make sure that it is right decision for you. If you borrow money it will mean that you are committed to paying back within a certain timeframe which is an agreed in the contract and at a certain interest rate as stated by the lender. (Source: Payday Bad Credit)
Before you go ahead and sign on that dotted line, you should really take some time to consider how borrowing money may have an effect on your finances in the future. You definitely do not want to gamble you chances as to whether or not you can afford the payment, how it will overall affect your credit score and other finances, or just guess whether it will fit in your budget.
It may be tempting to just take out a loan without doing much research. So, Payday Bad Credit have put together a list of things that you should really be asking yourself before taking out any sort of loan this new year.
Is this loan purchase necessary at this very moment?
Due to it being the start of the new year, many people can convince themselves that it is the right time to take out a loan and make a particular purchase. There may be a particular purchase you are wanting to make with the loan, but do you really need it right now? In reality, sometimes they and sometimes they can be postponed until you can actually afford to make the purchase without a loan.
Loans can be useful if it helps you spread repayment over time, including mortgages, cars, groceries and buying other household items. If you feel that you would appreciate a regular loan facility, you may find that a credit card is more suitable than a loan. Take this into consideration when you thinking about how to pay off the loan.
Maybe you can choose to make a smaller purchase of the thing you want by scaling back. It may be wise to buy a used version or a lower model instead. If you are buying a car with a loan, it may be better to consider going for the more basic option or a second-hand version of the car. Whatever money you save by doing this can go towards saving and investing instead.
Can you afford to make the repayments?
This is one of the most important questions to consider when taking out any kind of loan. If the answer is no then do not, under any circumstances, take out the loan. In fact, if the lender deems you unable to pay back the loan you will be rejected. However, there are some cases by which a lender does not practice fairly and will lend to you anyway.
It is vital that you are honest with yourself about your ability to pay back the loan, considering the limits of this purchase may make on your ability to do things in the future. Failing to repay your loan on time can result in default fees and negatively impact your credit score.
Additionally, you may be squeezing your budget that it will be difficult to do anything else, such as go shopping, go out for meals or socialise with your friends as much. You may come to regret or resent the reason you took out the loan in the first place.
You should also look at your debt-to-income ratio. No one wants to be higher than 25
How fast can you pay off the loan?
When taking out a loan of any kind, you need to consider how long it is going to take you to pay off the loan. It is extremely hard to build up true wealth when you are consistently paying off interest to others.
This is why it is important to carefully consider all the options before you go ahead and borrow money.