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5 important questions to ask yourself before taking out a personal loan

There are many ways in which people can use a personal loan to help take care of their needs. It could be used to take care of your debt, renovate your home, help pay off your car expenses, take care of your wedding and more. But it also pays to carefully consider your options when taking out a personal loan.

We’ve teamed up with Savvy, Australia’s leading financial brokerage institution and one of BRW’s fastest growing company to gather five important questions that you need to ask yourself before taking out a personal loan.

  1. What am I taking it out for?

It is all about the why when it comes to taking out a personal loan. Bill Tsouvalas, Savvy CEO, points out that, “Personal loans provide you with the flexibility to finance a range of different things from a holiday to home renovation. This flexibility is what makes a personal loan so attractive and popular.” Knowing the reason can prevent you from taking out a loan that you could potentially mismanage, which in turn could push you into a debt trap. This process can help you filter through loans to find the one that is suitable for your needs. You can consider speaking to a financial advisor or a broker to help you through the process.

  1. How much can I borrow?

Budgeting and researching are two components that will prove to be the most vital when it comes to handling a personal loan. Knowing how much you can borrow will depend on what you need the personal loan for and setting a budget around that. You can also compare various lenders to see who will offer you an amount that is suitable to your needs. However, the amount you can borrow will depend on your credit report.

  1. Have I checked my credit report?

Your credit score will determine how much borrowing power you have. It is also the first place that lenders will look at to see whether you are credible enough to pay back the loan. Therefore, checking your credit score beforehand and your lender’s requirement can let you know if you stand a chance of being approved. It can also play a part in terms of what type of interest rate you will get on your loan. If you have bad credit, it is important to assess if you will be able to pay off the loan.

  1. Will I be able to pay off my loan?

Always keep in mind that a personal loan is an amount that you are borrowing that comes with interest. Even if you have a credit score that is good enough to get you approved, it is important that you check if you can afford the monthly repayments that are due on a personal loan. This means using a calculator to check the monthly repayments and how much it will cost you over the term of the loan. You could also consider paying more than the minimum repayment to shorten the term of your loan.

  1. What are the fees and charges?

The fees and charges that come with a personal loan can make or break your loan repayments. Therefore, it is vital that you check the Product Disclosure Statement of your loan to see if it comes with added fees. This could be in the form of ongoing fees, establishment fees, and exit fees. Also, check if the loan comes with a penalty fee for paying off the loan early.