Loans can be convenient ways of accessing funds in an emergency, however there are cons to taking out a loan such as having to pay back the debts and having to meet loan requirements. Here are a few things to consider before you resort to a loan to ensure that it’s the best decision for you.
Consider your purpose
First, you should consider why you need a loan. Is it something you physically need or something you simply want? Emergencies such as car repairs, home repairs and veterinary treatment are all worthy causes to use a loan. Similarly, if you’ve run out of money before payday and need to eat, a loan could be necessary. A new TV, a holiday or a new handbag aren’t so worthy of a loan as they’re not things you need.
There are purposes that definitely do not warrant taking out a loan. You should never borrow money to gamble with – if you lose your bet, you’ll have given yourself debts for no reason. Similarly, you should never take out a loan for someone else – if they can’t take a loan out themselves, it’s probably because lenders don’t trust them to pay the money back and you shouldn’t trust them either.
Check your credit score
A low credit score could prevent you from taking out a loan at all. It’s worth doing a free credit score check online first to determine whether you’re likely to be eligible for loans – applying to loans only to get rejected could lower your score even further in some cases.
If you’ve got a good credit score, then it’s likely you’ll have little trouble applying to loans and you may be able to find lower interest deals. If you’ve got a poor credit score, a loan might be best avoided – the few lenders that will accept you are likely to charge extortionate interest rates that make it largely a waste of money.
It’s important that you’re able to pay back the repayments on your loan each month. If you’re already falling behind on monthly bills, loan repayments could add to the monthly burden and add to your snowballing debt. You may be able to use a budgeting app to assess whether you’re able to afford a loan.
Look into other ways of raising funds
A loan isn’t the only way to raise funds in a hurry. By exploring other options, you may not have to deal with debts and interest.
Saving up is one way to raise funds but it is slow and not always possible when it comes to raising large amounts. In the case of starting a business, you may be able to raise funds by seeking investment either via crowdfunding or angel investors.
There’s also the option of selling your clutter for cash to raise funds. Unused possessions in your home could be of value to someone else and could be a means of making some extra cash in a hurry. Taking up odd jobs online could be another way of making some extra money fast.