Taking Out a Loan? Make Sure You’re Not Biting Off More Than You Can Chew

Taking Out a Loan

You’ve found yourself in a real pickle and need help getting out of it. You’ve scraped all the cash you can from your budget and practically emptied your savings but there still isn’t enough to handle the problem. Perhaps a pipe burst in your home or the HVAC system just broke down and you can’t put off fixing it. Naturally, you decide you’ll apply for a loan to get the cash up front and pay it back in a reasonable fashion. Though it may be a good idea, it’s important to make sure you don’t bite off more than you can chew.

How Much Can You Afford?

As you know when you take out a loan you have to pay back more than what you’ve borrowed. Often, when faced with a financial emergency, this tidbit is left out. When the time comes to repay the loan, borrowers are often trapped in a hard place because they simply can’t afford it. This leads to delinquent payments, negative credit ratings, and eventually collections. The only way to avoid this is to educate yourself. Before you apply for a home equity loan, personal loan, or MaxLend advance check cashing loan, it is best you review the following factors:

Your Budget – Start by reviewing your budget. Based on the amount of income you have coming in and the bills you’re already paying, do you have any room for a loan? If so, how much extra do you have? Whether it’s $100 or $500 a month you will need to make sure you don’t commit to repaying a loan with monthly payments higher than this. If you don’t have enough money, are there some things you can do to free up cash? Bringing your lunch, canceling subscription services, cutting your cable, and other things may give you the extra cash you need.

Interest Rates – If you borrow $1,000 you’re going to pay back a percentage more. This is known as the interest rate. When searching loans to apply for, get an idea of how much you’ll be charged in interest. Keep in mind that although most lenders will advertise a low rate, the rate you are actually offered will be greatly impacted by your credit history. The better your credit score, the lower your interest rates are.

Fees – Some lenders charge fees that you’ll be required to pay as well. This can include an extension fee (if you need more time to pay the loan back), origination fees (paperwork and loan preparation, and late fees.

Duration – Let’s say you figured out a way to pay for the loan, how long can you afford to do it for? Loans can average in length from a few weeks to a few years. If you had to repay $250 a month, could you do that for 1-5 years without causing any problems with your other bills? Do you have any other things you’ll need to cover in the future that might conflict with your loan payments?

Financial Circumstances – Though you can’t control everything in life there are some things you may know in advance that should be considered when determining how big of a loan you can afford. For example, if you know that your job is laying workers off, is it a good idea to take out a loan? If you’re currently on disability and it runs out, how will you pay for the loan? Are you presently juggling around a lot of debt? If you are, another loan may only add to your problems. If, however, you have a stable job, a small savings, and plenty of wiggle room in your budget, applying for a loan is a no-brainer.

Once you sign a loan agreement, you’re legally bound to everything the contract states. That essentially means that you will pay the loan, associated fees, and interest back in a timely fashion. If you sign without first determining if you can truly commit, you put yourself in a bad spot. On the bright side, if you can afford it and you’ve created a successful plan to repay it, you can have that HVAC repaired or that car fixed, and build a positive relationship with a lender just in case you find yourself in a jam again.

Leave a Comment