Thinking about getting a loan? Well, before you go hitting that ‘Apply’ button or ringing your bank, there are a few questions you’ll need to ask yourself.
That way, when it comes to making a successful application, you’ll know exactly why you’re applying, what financial impact it’ll have on you, and how to ensure you can make the most of your money.
How much do you need – and why do you need it?
Applying for a loan isn’t like assailing Mount Everest: you shouldn’t do it just because it’s there. You should have a clear idea of why you need it, and how much you’ll need. It could just be that you want a quick top-up for your salary, or cover emergency spending you haven’t budgeted for (like your car breaking down or the boiler’s on the blink). Knowing the whys will dictate just about every other decision you make, such as whether you apply for a short- or long-term loan and how much you’ll have to pay back each month.
What type of loan do you need?
There are two main types of loan available – unsecured and secured. The latter is a loan that’s secured against possessions like your car or house. If you don’t maintain regular repayments, as per the loan agreement, those assets will be repossessed. An unsecured loan, meanwhile, is typically based on your credit score and isn’t protected by possessions or a guarantor.
Which lender or credit broker should you use?
There are many different establishments offering loans, so now you’ll need to know who to use. Just because a company offers loans doesn’t mean they’re a lender. The main difference is, a lender offers the money directly, while a credit broker connects those looking for consumer credit with those who can provide the loan. Whether you opt for an iLoans style online application or a traditional face to face consultation, make sure you thoroughly research the company you intend to use. This should include everything from the type of reputation they have (loan sharks are a no-no) to what their average interest rates are.
How will you manage your repayment plan?
Arguably the most important part of getting any loan is making sure you know precisely how you’ll repay the money, plus any added interest. It’s a wise idea to set up a budget anyway, so you know how much you’ve got coming in (and how much of it is going out). Once you know how long your loan is likely to be for – personal loan repayments generally range from a few months to a few years – you’ll be able to easily assess how much it will cost per month to pay it all off.
Will you be accepted?
When applying for a loan, you’ll usually have to run through a credit check, which uses your financial history as a means to determine your eligibility for any loan (and, based on that, whether you’ll be able to pay it off without leaving yourself in dire straits). In some cases, you may also need to provide details of a guarantor, who is liable for the loan should you fail to make repayments. These credit checks will be added to your credit score, which may impact your ability to apply for loans and credit cards in the future. However, some lenders and credit brokers offer a way to check your eligibility without needing a credit check, which is a good way to find out whether you’ll be accepted without it affecting your credit score.