There comes a time in all of our lives where we would like to make a purchase, maybe a necessary one or maybe a pleasurable one, and we just don’t have the funds to make it happen. The options would be to look at some kind of funding or to save and wait to make the purchase further down the line. If the decision is made to look for funding via a loan, there are certain factors that must be considered to decide whether a loan is a good option for you or not.
How Credit Worthy Are You?
Before offering you money, the lender will assess your creditworthiness usually by running a credit check. If this is favorable, you may have the choice of lenders willing to offer you money at a reasonable rate of interest but if the credit check shows a poor or even just a fair score, you may be limited as to who would be prepared to lend money to you. If this is the case, you may face much higher interest charges or unrealistic terms for the loan.
Make sure that you know what the loan will cost you over the term and in general, the lower the APR figure, the cheaper the loan. Watch out for arrangement fees, this can add considerably to the cost of the loan. You must also work out in your own mind whether or not the purchase is worthwhile. Is there another option, a cheaper alternative or could I wait. See more about Loans and being creditworthy through Everyday Loans.
Even with a good choice of lenders, you must question your ability to make regular payments sometimes over a period of years so if your financial income is not stable, it may put you in difficulty down the line as lenders tend to be strict with their conditions and will not allow payments to be missed.
There can be quite serious consequences if you default on the loan and these consequences can impact on your credit rating meaning that it may become difficult or impossible to obtain further credit down the line. Remember, the fabulously desired purchase now may not be so attractive 3 years later when you are still paying for it! Consider whether or not this purchase will help your long term goals or whether the monthly payment could become a debt that in the long term could prevent you from furthering your ambitions.
Consider Other Options
A loan is not for everyone and if you have decided that the purchase is a must, what other finance options are available to you? Do you have a credit card or could you obtain a credit card? Some credit cards offer 0% APR on balance transfers and purchases sometimes for a limited time, would this option work for you? It could offer you more flexibility in terms of paying the money back.
Credit cards also offer cash advance options although this is usually chargeable. If this could be an option for you, make sure that you shop around as different credit cards offer different options and some credit cards are available to those with poorer credit so shop around carefully and make sure that you read all of the small print.
Would it be an option to ask a family member or relative to help you? If you choose to go down this route, it is an idea to make sure that everything is put in writing as many great friendships have been destroyed in this way, it is not the option for all.
Whatever you decide, think carefully, a loan can be a long term commitment. Do your homework so that you can avoid the pitfalls.