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Most people will require a loan of some sort at some point in their life. Whether it is a mortgage to buy a home or a personal loan to cover your expenses in a particularly heavy month, there are all kinds of different strategies to help you through. While debt should never be taken lightly, it can be a short term solution as long as you are fully informed about what you are taking on.
So, if it is time to borrow money, here’s what you need to know.
Look at the Interest Rate
The first thing to look at on any loan is the interest rate. This is the amount you will be charged on the loan and will mean that you repay more than your original borrow. There are lots of different interest rates available from 0% credit cards to astronomical interest rates that may be charged by loan sharks.
The interest rate is important because even if you think that you can repay the loan amount within the time frame, you must also be able to pay the interest. This is where lots of people get into a mess because they don’t realise how much they will actually have to repay and budget accordingly.
If you are in doubt about the affordability of a loan, seek financial advice.
How Long is the Loan Term?
The length of a loan term is also important because it will affect your monthly repayment scheme. A large loan like a mortgage will usually have a long term of around 30 years (give or take) but you can also take out short term loans online that have significantly less time attached.
The less time a loan takes to pay off, the less time there will be for interest to accrue, however, if the interest is very low on a long term loan, it might be a better offer than a short term loan. This means that when you are comparing loans and loan types, you need to calculate the total amount of interest that will accrue over the given time frame and compare that way before deciding which is better for you.
Are There Any Other Options?
Loans are a good way of being able to afford the things you need now and can provide you with a quick injection of capital when you most need it. However, loans should be treated cautiously and you are always advised to see whether there are any other options open to you.
While it is unlikely that a yard sale will get you enough to avoid a mortgage or student loans, if you are considering a riskier type of loan like a personal loan or a high-interest credit card, you might want to go through your things and see if you could raise the capital that way.
You might also want to consider other ways of making money such as taking on weekend work or doing something else like blogging. If your needs can wait while you save this is always best, but for an instant need, doing your homework on loans is a good way to use your debt wisely.