Need a personal loan? Here are 7 essential questions you must ask before seeking one

Personal Loans: There can be so many reasons for taking out a personal loan. However, are all such loans available from banks or fintech organisations worth your choice? You may need a loan to pay off some expenses, repay an existing loan, or for debt consolidation. Whatever the reason may be, the easy availability of these loans must not be the sole criterion for applying for them. Apart from the comparatively higher interest rates, it is the unwarranted tendency to seek debt that you must be wary of.

If you have set your heart on applying for a personal loan, it would do a lot of good if you ask yourself the following questions before scourging the web for one.

Why do you need this loan?

First, ask yourself if you need a loan before proceeding to assess if you really need the loan. Is this loan requirement imperative and imminent? Don’t you have a savings account to dip into for some amount while you look for alternative money sources to pool up the necessary amount? Have you explored every possible avenue, from utilizing your savings to seeking assistance from friends or family, or attempting negotiations with creditors?

To determine whether a loan is necessary, start by evaluating your financial status. Examine your income, expenditures, and outstanding debts. If you find it challenging to cover your expenses or if you’re burdened with high-interest debts, taking out a loan could be a suitable solution for your circumstances.

How much loan do I need?

Taking a loan means opting for a new line of credit. Do not just rush to any nearby bank for a loan or a private lender inquiring about interest rates and loan availability. Prior to embarking on your search for a lender, it’s imperative to perform a precise calculation of the amount of funds you require. This approach ensures that you secure the appropriate loan amount while preventing the accumulation of unnecessary debt.

Here are some guidelines for determining the necessary amount of funds:

List down all your expenses: Do you know how much money you spend each month? What are your essential expenses? Which expenses can you do that? List down all your regular and irregular expenses and corroborate them with your monthly earnings.

Check how much you are left with: After having summed up your monthly expenses to find the total monthly expenditure, deduct your monthly income from your monthly expenses to calculate your net monthly income. Determine the maximum monthly sum you can allocate to loan payments, which should be more than 30 per cent of your net monthly income. Subtract this affordable loan payment amount from the total funds you require, and that will give you the appropriate loan amount to request.

How low can you borrow?

Instead of finding out how much you should borrow, check how much you can do without borrowing. This will automatically help you to calculate how low you can borrow. Initially, it’s advisable to tap into your savings account or consider selling assets to reduce the amount you must borrow. This step can lead to savings on interest and fees in the long run.

If you possess any savings, contemplate utilizing them to cover a portion or the entirety of your loan expenses. This approach can effectively diminish both the sum you need to borrow and the associated interest payments. Additionally, if you have unused items, consider selling them to generate funds. This not only reduces your borrowing needs but also declutters your living space. If you’re comfortable with the idea, don’t hesitate to reach out to friends and family for potential assistance with your loan. They might be willing to provide a loan or assist you in locating a suitable lender.

How soon can I repay this loan?

Will you be able to repay this loan or, most importantly, how soon will you be able to repay this loan sought? The majority of loans come with predetermined timeframes within which they must be repaid before interest begins to compound. This designated timeframe is commonly referred to as the compounding period. Compounded interest is computed based on the entire loan amount, encompassing both the principal and any previously accrued interest. Consequently, the interest on your loan has the potential to accumulate over time, even if you faithfully make your monthly payments.

Leave a comment

Translate »