Borrowing money should only be done when you are sure that you can pay it back. And it does not matter whether the money was received from close relatives, friends as well as from a bank or lender. If in the first two cases, the problem may be limited to a painful termination of the relationship, in the case of a bank or lender, the case may go to court.
To help you avoid such a scenario, we’ve compiled a list of questions to ask yourself before deciding to take out a loan.
- Questions to Think About Before Applying for a Loan
- 1. Do I really need the goods/services for which I plan to take out a loan?
- 2. Will I have to give up any of my normal needs because of the need to contribute a certain amount of money each month to pay off the loan? How difficult would that be for me?
- 3. Am I sure that for the loan repayment period I choose or suggested by the bank, I will be receiving a regular income?
- 4. Is the repayment day convenient for me – will I have the necessary sum of money to make the payment by that period?
- 5. If an emergency occurs that results in my temporary incapacity to work, will someone be able to make the monthly payment on the loan for me?
- It is Better to Think Twice Before Taking a Loan Than Get Into an Unpleasant Situation
Questions to Think About Before Applying for a Loan
1. Do I really need the goods/services for which I plan to take out a loan?
Evaluate whether you really need the product or service for which you are willing to take out a loan. Is it possible to postpone the purchase to a later date? Think about how your life would change if you made the purchase now, and what would happen if you put it off until later, when you have saved enough money with other tools, such as a deposit? If answering these questions, you conclude that so far you can easily manage without the thing or service for which you were planning to take a loan, it’s better not to take it. But if their absence makes your life difficult and incomplete, then you’re probably on the right track.
2. Will I have to give up any of my normal needs because of the need to contribute a certain amount of money each month to pay off the loan? How difficult would that be for me?
Think about whether you will have to give up some of the normal things you usually use due to the necessity to assign a certain amount from your income each month to repay the loan? Will it affect you physically or mentally? Will you feel comfortable during the period of temporary restrictions? If you realize while answering the questions that you will have to change your habits radically, which will result in significant disruption to your normal lifestyle, delay and postpone the purchase for later to avoid delays in your monthly loan repayments.
3. Am I sure that for the loan repayment period I choose or suggested by the bank, I will be receiving a regular income?
If you work as an employee, think about how secure the company you work for is. Are there any signs of closure or reduction in staff? Evaluate your relationship with your team and management, are you happy to work with them, are you satisfied with what you do and your salary, or are you waiting for the right time to leave the company?
If you are self-employed, try to predict the possible risks of your business. Is your business subject to seasonality? Can you quickly be able to modify your area of work if necessary?
If you answer these questions and come to the conclusion that you are going to have a regular income during the whole term of the loan to cover the monthly payments, then the risk of being unable to fulfill your obligations under the loan is minimized.
4. Is the repayment day convenient for me – will I have the necessary sum of money to make the payment by that period?
The repayment date is one of the most important points in the lending process. When you apply for a loan, be sure to find out by which date each month you must make your payments. If it occurs, for example, on the first day of the month, and you receive your salary on the 10th, then ask about a possibility to move the payment date to a later date to minimize the risk of delaying the payment of the loan.
5. If an emergency occurs that results in my temporary incapacity to work, will someone be able to make the monthly payment on the loan for me?
An unforeseen situation that can lead to disability and, as a consequence, inability to earn an income may happen to anyone. That is why it is very important to understand whether in this situation someone in your circle, at least temporarily, will be able to make loan payments for you until you get back to normal work. If there is such a person, this will be an additional argument in favor of taking out a loan.
It is Better to Think Twice Before Taking a Loan Than Get Into an Unpleasant Situation
A loan is a convenient and often a very necessary thing. For example, not everyone can afford to buy a new car. Therefore, a loan is a good option not to postpone such a purchase. But before making any additional financial commitments, you should think very carefully and evaluate everything.
We hope that our article will help you make the right decision.