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Advice

Should You Consider Getting a Loan?

A loan is something that some people will just take out without much thought. They may just put things on their credit card, go overdrawn or take out a loan without really thinking about the consequences but others are really worried about borrowing any sort of money at all and would rather not do so. These are too extremes though and many people fall in the middle where they sometimes borrow money but not often. Taking out a loan should not be something you rush in to. You should think hard about the decision and there is a selection of things that should be considering before taking one out.

When considering a loan you should really be thinking about what you need the money for and whether it is necessary for you to have it. A loan costs money and can be really expensive so you need to decide whether you are prepared to pay that extra money to be able to afford the item that you are using the loan to buy. Consider whether you might be better off saving up for the item rather than paying to borrow the money to buy it.

It is always worth taking a long time to make this decision. You need to start by deciding whether the loan is the right thing to do, but then look at the different types, see which is most suitable and calculate the cost of the loan as well as the repayment amounts. This cost should be something which you calculate and decide whether you are prepared to pay. Think about how much more you are paying for the item as a result of having to pay the loan costs and whether you still think that it is worth having. You also need to take a look at the repayment amounts and see whether you will be able to afford them. Consider the term of the loan and whether you think that you will be able to afford to pay it for the whole term. If you are not sure then it will be worthwhile calculating what you expenses and income is and seeing how much you have left and whether you would have enough to cover those repayments.

If you have savings then it would usually be cheaper to use those rather than borrow money. The interest on savings accounts usually tends to be a lot less than what is charged for borrowing money. Check if this is the case and if it is, then it will be better financially to use savings rather than borrow money.

Sometimes the item that you want to buy is just too expensive to consider getting without a loan. This can include things such as buying a home, car or university fees. These items are often seen as essential or a way to getting higher pay in the future. This means that they could almost be seen as an investment and so the loan would be considered to be worthwhile. Of course, with all of these they would only be essential in certain circumstances. So if the home increases in value so that when the mortgage is paid off it has increased in value more than the cost of the loan, then this would be considered to be a really good investment. However, there are some occasions when a house may not increase in value, such as if the area becomes undesirable, there are floods, the house becomes structurally unstable or the house prices generally fall. With a car, you may need the vehicle to get to work. Therefore the income is reliant on you having it and so it would seem worthwhile. However, if there are alternative and cheaper ways to get to work or the car purchased is unnecessarily expensive, then this may not seem like such a good idea. Borrowing for education could be a way to a better paid career and so be worth it. However, if the course does not lead to a job then it may not be worth the investment.

So there are advantages and disadvantages to getting loans with some being more worthwhile than others. It is worth considering what you are using the money for, how much risk you are taking and the full cost of the loan; before you make up your mind.

Tips

Advantages and Disadvantages of a Consolidation Loan

A consolidation loan is one where you take all of your debts and put them together so that you are left with just one to pay. There are advantages and disadvantages to doing this and it is worth being aware of them before you decide whether this is something that you would like to do.

Having lots of debts can get you in a muddle. It can be daunting knowing that you owe money to so many different people and it can sometimes be confusing knowing what you owe and who to. Having it all in one place means that you will be able to know exactly how much you owe and to who and you will not have the fear that you have lots of debts that you had forgotten about that might suddenly appear. You will also have one repayment a month which will help you to know exactly where you stand financially. With a mix of debts you may have different amounts to repay at different times of the month and it could be difficult to manage your money and know whether you will have enough to last you until you next get paid.

However, a consolidation loan can be expensive. Taking all of your debt and putting in together with just one interest rate to be paid back over a long term can mean that the total interest you pay will be more than if you concentrated on paying them off separately. However, if you have debts such as credit cards, which have no formal repayment schedule, it is hard to work out how much you would end up paying in interest overall because it depends on how quickly you repay it. You may have found that you will have just ignored it and not paid it off, without having a formal repayment system in place, which is what the consolidation loan will create.

One trap that you have to be aware of is consolidating and then getting more debt. Once your debt is all in one place, then you may have an overdraft available again or a paid off credit card which you could potentially use. If you are in the habit of using them, then you may find it too easy to start using them again and start building up debt in different places. It is wise to try hard not to do this and to avoid getting into any more debt. It may mean that you need to cut up your credit card or cancel your overdraft in order to make sure that you do not have the temptation there.

If you want to pay off your debt without getting a consolidation loan, then this will usually be cheaper and it could be quicker too. You will need to be string though and come up with a repayment plan of your own. Find out what you owe and who too and how much each debt is costing you in interest. You then need to concentrate on paying off each one. It will make financial sense to pay off the most expensive first, but some people prefer to get rid of the smaller ones first so that they are left with a lower number of debts which makes them feel more motivated and more in control. Some people find this difficult to do because they do not have to do it. They may find the calculations difficult as well as getting together the necessary money to pay the debts. Only you know whether you will be able to do this or whether you will be better off getting a consolidation loan and paying it off that way.

If you do decide to get a consolidation loan then it is important to choose one that offers a good price. Obviously the interest rate could change, but compare current interest rates as well as looking at other costs of the loan and see which is the cheapest. Look at other factors too such as the reputation of the lender and what their customer service is like, but do make sure that you are aware of all of the costs and the interest rate as well as any fees that may be charged during the course of the loan such as for early redemption or missing a payment.

Costs

Why Cost is not the only Factor when Comparing Loans

Many people will automatically think that the cost of the loan is the only thing to consider when you are choosing between them. However, there are many factors that should be considered for a variety of reasons.

Firstly, many people will just compare the interest rates of a loan. This may seem sensible and it is something hic is very important. However, there are other costs which you should look at too. There may be a setup cost, for example, or other administration charges. It is also important to consider any fees that could be charged. For example there will be fees if you are late on a payment or cannot make a full payment. These can vary a lot and it is worth checking these even if you think you will always be able to make the payments. You never know what will happen in the future and so you need to be aware of the consequences.

Besides from cost of the loan, there are other factors that you should consider. One of the most important of these is flexibility. You need to be aware of how flexible the loan is. This means that if you do struggle with meeting repayments, whether you will be able to skip a repayment, make smaller payments or come to some other arrangement with the lender to help you to manage better. This is likely to cost you but it could be more helpful than repossession to you. Therefore find out what your lender is likely to do in this situation and whether it sounds like a good solution to you.

Some people feel that the reputation of the lender is really important when choosing a loan. They feel that they would rather go with one that comes recommended as they will trust them to look after their customers better. If this is the case for you then it is important to read reviews of both the lender and the particular loan that you are thinking of taking out to find more out about what others think. You may also be wise to ask friends and family who they borrow form and whether they would recommend them. It is worth remembering though that a small lender who may not be well-known may look after their customers better because they are more valuable to them than a well-known name who already has a reputation so will not need to work so hard.
Customer service is something which is important to many people as well. If you have any sort of query or problem then you will need to get in touch with the lender for help. This can be easier with some lenders than others and it can be really important. It can be wise to telephone the customer services department and ask a few questions. This will enable you to find out what they are like. You can see how friendly they are, how knowledgeable and how quickly you can get through and get your questions answered. You may wish to read some reviews too and find out if other people have any comments about them. You should be able to find things online if you just put ‘customer service’ and the name of your potential lender.

For some borrowers ethics are also important. They want to use a lender that they feel invests their money in things which they agree with. Some lenders are very careful with where they invest, to make sure that they feel that they are only giving to companies that they feel are ethical. The main problem with choosing a lender like this is that they tend to be more expensive. Obviously how important this is to you will depend on your own ethics as well as whether you can afford to pay more for your loan.
Although cost is a huge factor when choosing a lender, it is really important to be aware of other things which are important as well. You need to be sure that you are borrowing form a lender that you can trust and that will be flexible if you need them to be. You want to feel assured that they will have a good customer service department that will be able to help you out if you need it.