If you’re struggling for money a personal loan might be the perfect way to help while you reorganise your finances. There are a huge range of products available from banks, building societies and online lenders, suitable for those with a range of incomes and credit histories, but before taking on a loan you might want to ask yourself these questions…
Can I can pay it back easily?
It’s a simple test but an obvious one – if you need funds for something, and you can afford to pay them back in a set period of time with no disruption to your life, then this is clearly something to strongly consider. A loan could pay for anything you want or need in life, and if properly managed it can be paid off at a rate and frequency that’s comfortable to the borrower. If you want to see what you’ll pay back, go to http://moneyadviceservice.org.uk/en/tools/loan-calculator
Am I organised?
Once you’ve taken out a loan you have a legal commitment to pay it back at the terms agreed. If you’re concerned that you’ll forget to pay back at least the minimum requirement each month, set up a direct debit or ask the lender to do so. You should be able to set the optimal date for the money to be withdrawn, such as one day after payday.
Am I disorganised?
If you are struggling to keep up with multiple debts, paying them either too late or failing altogether, it’s likely that your credit rating will take a knock (although some banks allow a period of grace under certain circumstances). You’ll also suffer late payment charges, and then suffer interest on these if they are not paid. Therefore, one single loan with a direct debit could actually ‘clean up’ your finances and prevent this happening.
Will I be annoyed about the interest?
Taking out a loan isn’t a simple case of paying back the money over a period; the lender will impose an interest rate of anywhere from 2-3% APR up to 100% or far more. To illustrate the difference, a loan of £10,000 to be paid back over five years with 3% interest would impose interest of £781 in total.
With an interest rate just 2% higher it rises to £1,322, and an interest rate of 20% would see the person paying back almost £5,900 in interest alone. If this bothers you more than the need for the money, and you can afford to save up, then a loan might not be for you. That said, the recent Bank of England interest rate cut might drive credit interest down, but this should not be taken for granted.
Do I want to build up my credit rating?
There are some legitimate reasons to take out credit even if you don’t need it. For example, if you’re looking to the future and aiming for a mortgage the best way of building up your credit rating is to take out a small loan, credit card or store card, and then pay it off immediately.
Is it worth it for the excitement?
Want to splash out on a new car, or a holiday? How about making sure this will be the best wedding anniversary or Christmas ever? Why not get that conservatory you’ve been eyeing, or treat your relatives to some well-deserved gifts? A loan can be an immediate way to bring joy to people, and providing that you’ve analysed your finances and taken note of the other points raised here, you can afford to borrow.