Getting a loan is a big responsibility and you should make sure you’re getting into such a significant arrangement for the right reasons. Defaulting can have big consequences that can be long-lasting and you should take everything into account before you make your decision.
So before you make your decision, be honest with yourself when answering the questions given below. You might find that the reason you’re taking out a loan may not be worth it, or that you won’t be able to make the payments.
So before you sign away your house or car in exchange for a loan with massive amounts on interest and mark-ups, ask yourself these important questions.
Do you really need to make the purchase bad enough to take out a loan?
Understanding your finances includes recognizing your “wants” and “needs”. Food and shelter are needs, whereas a brand new SUV is a want.
If you’re managing just fine with your current lawnmower, just save up and then buy a new one rather than taking out a loan to buy a new one right away. If you’re using the loan to buy a home for your family, then it’s understandable to get a loan because not everyone has that kind of cash lying around.
So the question comes down to whether the purchase is important enough to actually take a loan and be bound to pay for an extended period of time.
Can you settle for something less expensive?
It may be tempting to trade in your car for the very latest model, and chances are you’ll be taking out a loan to switch over. But ask yourself if you really want to get the latest model brand new or if you could live with slightly used. A slightly used version would cost less and you could manage with your savings. Even if you do take out a loan it’ll be less money to pay back.
Can you afford the payments?
Getting the loan is the easy part, but can you afford to pay the money back on a monthly basis for four or five years? Actually, sit down and assess your financial standing to check whether you have enough money left to pay the installments after you’ve paid for your other bills and necessities.
What is the term of the loan?
Sometimes, the amount you have to pay isn’t the problem, but rather the duration of the loan. Considering you could be paying loans off for at least 5 years in some cases, are you prepared to get into a binding commitment for such a long term?
What happens if you don’t pay?
This would depend on the type of loan you’re involved in. If it’s a car loan, your bank or lender will repossess the vehicle, as is the case with mortgages. You can also lose any collateral you may have signed over in return for the loan. If you have an unsecured loan with a private lender through a portal like Citrus Loan, then chances are you’ll be fighting a legal battle to resolve the matter. Either way, the consequences aren’t great.