There are numerous reasons why you may want to take out a loan. You might want to add an extension to your home, purchase a new car, or maybe start your own business! However, there is a lot to review before committing to a loan. From interest rates to credit scores, you need to be clued-up.
Luckily, you’re in the right place for that. In this guide, we will take you through the top four questions you need to ask yourself before taking out a loan. By the end, you should feel fully prepared. Let’s jump in.
- What type of loan do you need?
- How high is the interest rate?
- What does your credit score look like?
- What fees are associated with this loan?
First things first, you need to know what kind of loan you need. There is a wide variety out there, but some of the most common include:
- Personal: usually the most flexible available, these are often required when funds are needed quickly
- Business: this category covers a large variety of loans, but they are often used to set up or maintain a business by covering equipment or stock expenses
- Consumer: a highly common form of loan, examples include credit cards, mortgages, and home equity
Once you know what type of loan you need, you should still shop around for your best option. Loan comparison sites (such as forbrukslån) can be helpful for this. There is a lot of variance between loans, even if they fall under the same category.
Now that you know what kind of loan you need to go for, it’s time to talk about interest rates. This is a must before committing to anything, as extortionate interest rates can ruin your bank account. It may sound dramatic, but some interest rates can be as high as 30%, which is an insane amount on top of your original loan.
Generally speaking, when hunting for a good interest rate, you should look to the national average. If it is lower than the national average, then you can feel fairly assured you are onto something good. If it is significantly higher, it is time to look elsewhere. Interest rates greatly affect how much you need to pay back. Don’t make the mistake of loaning money in a pinch only to end up in even more debt.
The first thing most lenders will look to is your credit score. It gives them an idea of how successfully you have paid off loans in the past. This then gives them a rough idea of what they can expect from you. If you have a low credit score, they may decide that you aren’t trustworthy and will not issue a loan.
Failure to pay a loan back within the agreed timeframe can severely impact your credit score, so it is important to stay on top of your monthly repayments. There are numerous tools on the internet you can use to check your credit score for free.
There are a variety of fees potentially attached to loans that can increase your overall costs. These could include:
- Early exit fees
- Service fees
- Withdrawal fees
- Insurance fees
All loans are different and various lenders will have different expectations. Make sure to read the small print before proceeding with a loan, as hidden fees could come back to haunt you.
Final Tip: Do Your Research Before Committing!
A loan is a big commitment and usually entails large sums of money, so you need to make sure it’s right for you! We have identified some questions you should ask, but these are mostly just starting points. Don’t be afraid to ask your lender a million different questions before signing on the dotted line. It’s better to be safe than sorry!
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.