Things to Consider Before Opting in for a Loan

We’ve all been there. We’ve all been in a situation where we needed money urgently and simply didn’t have enough or even a single rupee to spare. This is one of the worst feelings, not only because it feels like you are completely in the depths of despair, but also because it comes with an unavoidable twinge of self-blame - “if only I had managed my money better” or “I should not be in such a situation at my age.” At times like these, we often tend to turn desperately towards a loan. Credit card bill piled up? Personal loan. Short a few ten thousand for your car payment? Personal loan. Big banks make millions just from interest payments and other loan-related fees, while you lose so much money in the long run.

Before you make that crucial decision to apply for a loan, make sure you have not only exhausted all other options, but have also considered all the factors. Here are some things to consider before opting in for a loan.

Purpose of the loan

When you get approached by loan officers with special rates and perks, it might be tempting to just go for it - a hundred thousand rupees could really boost your standard of living after all. However, if you are unable to state a definite purpose as to why you wish to take out a loan, it’s advisable to avoid taking one. If you have multiple pending payments which you plan to settle with a loan, prioritise each one and allocate the loan funds accordingly. Understand that you might not be able to borrow as much as you need, and never borrow more money than you need.

Do your research

Once you have determined why exactly you need a loan, you will need to approach several service providers and money lenders to understand what they offer. Some of the things you will need to ask for and compare are:

• Required loan value
• Interest rates
• Repayment duration i.e. loan term/tenure
• Loan application processing time period (this is the time period from when you submit your loan application until your loan gets approved or disapproved)
• Loan processing fees (apart from the interest rates)
• Other fees, terms and conditions

It is important to get all this information from numerous service providers to find out which one can offer you the most suitable loan. Ensure you ask your friends and family for their past experiences and recommendations.

Find the total cost

When comparing the services and loan schemes offered by various money lenders, keep in mind that there are countless hidden costs within the terms and conditions. It could be various processing fees, annual fees, interest rates, late payment fees etc. Make sure to consider all these costs and find out just how much money you will need to pay in addition to the loan value and the total interest. You may even find that a money lender with low interest rates recovers this money through various other fees, terms and conditions.

Ascertain your ability to repay the loan

While getting a loan might be easier said than done, it is definitely easier to get a loan than repay one. Even though you might qualify for a loan, it might not be as easy as you thought to pay it back - your expenses tend to increase over the years as your personal commitments increase. The loan you took out with the intention of settling your debts and improving your life might very well prove to be your downfall if you are unable to pay it back. When considering your current income level as your means of repayment, keep in mind a scenario when your other expenses increase drastically or if your income reduces.

Alternatives to Personal Loans

Finally, before you decide to take on the hefty long-term commitment of a personal loan, make sure you have exhausted all other possibilities.

Credit Card

Depending on your requirement and the amount of money needed, a credit card could very well prove to be a great alternative to a personal loan. Interest-free instalment schemes could very well allow you to pay for large purchases with little to no additional costs. Even converting a purchase to a monthly instalment scheme at a nominal fee might be cheaper than going for a loan. Avoid withdrawing physical cash from your credit card, as well as not paying your credit card bill in full.

Overdraft

If you have a current account with an overdraft facility, it could very well provide some much-needed financial relief during times of distress. Overdraft fees tend to be extremely reasonable and you might be eligible for a large value depending on your relationship with the bank. You need to have sufficient funds in the bank and a very positive relationship in order to qualify for an overdraft.

Payday Loans

A great alternative to a bank loan in times of need is to go for quick money lending services like OnCredit.lk for an easy bail-out. Not only do you get the money instantaneously and almost no questions asked, but you don’t need to make your friends and family privy to your personal finances. Furthermore, payday loans are short-term which means you can be out of debt within just a few months.

While taking a loan during times of financial distress might provide some relief, keep in mind that it is a major commitment that provides short-term relief. You will be taking on the burden of repayment for the next few years and such a commitment should only be taken only after considering all the aspects.