What to consider prior to taking on a new loan.
What will it cost me each month?
The monthly cost of a loan will depend on how much the loan is for, how long you agree to repay it over, the agreed fees, and any additional charges that may be included. However, you should only take out a loan that you can afford. A simple way to do this is: calculate your monthly outgoings (rent, bills, travel costs, food, etc.) then subtract that from your monthly income. Is the remainder enough to cover the loan’s monthly payment?
What are the penalties for late payments?
Most loan companies will issue additional charges if you miss any monthly payments to compensate them for following you up, rescheduling the loan repayments, etc. Make sure that you know in advance what the worst-case scenario could be. Mainly so that you know to avoid it!
Are there any additional charges?
Always find out if there are any additional charges so that when you come to confirm your loan, there are no nasty surprises. Also, once you have signed up for the loan, some lenders charge a fee to make extra payments or impose a fee if you pay the loan off early. It is good to know these things sooner rather than later!
What are the total repayments?
The amount you will pay back over the period of a loan will obviously be more than you initially borrowed. Ask what the exact repayable amount will be upfront before you apply so that you have all the information you need to help make your decision.
What is the length of the loan?
Try to avoid open-ended financing, such as credit card debt, where you have no real endpoint to the loan. The total amount you pay will be greatly influenced by the period of the loan so make sure that the loan term is of a length that you can manage and afford. The general rule is the shorter the term of the loan, the lower the overall repayment.