From time to time, most people find themselves in a position where they need to borrow money for something. Whether you want to make a big purchase like a new car and aren’t in a position to save up your money and pay for it in one go, or you have had an emergency expense that you weren’t expecting to have to cover this month, there are lots of loan products available that you can use to ensure that you can make ends meet or get what you need.
When it comes to ensuring that you can manage the impact of borrowing money, make regular repayments, and keep yourself financially healthy, it’s important to make sure that you find the right loan for your needs. Borrowing money is not something to rush into no matter your reasons or your circumstances, so it’s important to spend some time setting your budget, making sure that you’re going to be able to make repayments comfortably and coming up with a plan for any issues that you might face while repaying your loan. When finding the right type of loan for your needs, there are a few main things to consider.
What You Need the Loan For
The first thing to consider is why you need to borrow money right now. There are no right or wrong answers here; just be honest with yourself, as your reason for borrowing might have an impact on the best type of loan for you. For example, if you’re dealing with a lot of smaller debts right now that are having an impact on your lifestyle and your finances, you might consider taking out a debt consolidation loan that you can use to repay all your other debts in full, making your finances much easier to deal with as you will then only have one loan and one monthly repayment to deal with rather than several. Or, perhaps you want to make a big purchase like buying a new car; in this case, there are a few options to consider including car finance products or taking out a personal loan that allows you to buy the car outright and keep the vehicle and the borrowing separate. Maybe you’ve got a broken-down home appliance that needs to be replaced as soon as possible, and a short-term loan is the best way to make that happen.
Your Current Credit Score
Before you use a broker to start looking for and applying to the best loan products for you, it’s a good idea to get clear on what your current credit score looks like. There are various ways that you can check your credit score online for free, allowing you to see what’s impacting it the most right now and what lenders are going to see when you apply for a loan. By doing this, you can get a better idea of how likely you are to be accepted for a new loan product, which can help you determine the best ones to apply for based on your eligibility.
Some loan companies and credit checking services also have eligibility checker tools that you can use to find out more about the products you are most likely to be accepted for based on your credit score. For example, Payday UK is a broker that uses the information you provide to search lenders before providing you with more information on the loans that you are most likely to get if you apply.
Determining Your Budget
Before you accept the terms of the loan and get the money sent to your account, it’s crucial that you have taken the time to make sure that you are aware of how much you’re going to be expected to repay each month, and whether or not you’re going to be comfortably able to do so. If you have found yourself in a situation where you are struggling financially and need to borrow some money to get by, the last thing that you want is to make this situation even harder for yourself just to fix things over the short term. Consider the real cost of borrowing money. This doesn’t just mean getting clear on the amount that you’re going to make in repayments each month, but also consider if you are going to need to make other financial sacrifices over time to make the repayments and if over the long-term, making repayments to a loan is going to have a potentially detrimental effect on your finances. The main thing to avoid is going into a situation where you will end up having to borrow more money to afford the repayments or afford things that you’d normally be able to buy if you weren’t making repayments to a loan on top of everything else since this can leave you stuck in a potentially dangerous borrowing cycle.
Find a Reputable Lender
If you need to borrow money, then it’s important to spend some time making sure that the lender you’re borrowing from is reputable. This is especially true if you are considering taking out a short-term loan since while things have certainly improved when it comes to short-term lenders now, not all lenders are as strict about following the regulations in place as others. Short-term lenders need to take care to ensure that you are able to afford the loan that you are applying for, and they also need to limit the fees that they can charge you on top of the repayments, if you fall into difficulties. Another factor that you will need to consider is how supportive the lender will be if you do end up struggling.
Are Alternatives Available?
Sometimes, a loan might not always be the best type of credit to go for if you are in a situation where you need to borrow money. If you want to improve your credit score at the same time and prefer the idea of having an option that you can use over the long term and only pay for what you use, a credit card might be more suitable for you. However, when using a credit card, there are certain things to consider to ensure that you are being responsible with it and don’t end up in difficulties. One general rule of thumb is to only use half of the available balance on the credit card at any one time to prevent maxing it out and so lenders don’t see that you are relying too heavily on credit. Ideally, you should repay the balance of your credit card in full each month, which is why it is a good idea to keep this balance low wherever possible.
Finally, if you are considering borrowing a loan or credit card due to current financial difficulties, or so that you will be able to repay other debts that you are struggling with right now, it’s always a good idea to get some impartial debt advice before you make any decisions. You can do this by speaking to charities such as StepChange where trained advisors will be able to talk through your options and help you come to the best decision for you.
While it’s sometimes necessary to borrow money, making sure that you’ve covered all your bases when borrowing will ensure that you find the right product for you.