Bank loans offer a great opportunity to realize your dreams, and to make decisions that might change your life for the better. But there are also some pitfalls that you have to look out for. Below, I’ll give you 5 simple tips to consider before applying for a loan.
1. What will you do with the money?
Some costs should be paid immediately, so that the total price doesn’t increase. Other costs may wait until you can afford them. Before deciding to apply for a loan, it’s smart to make an assessment of how important it is to get the loan immediately. Are you going to spend the money on something that has to be fixed right now, or can you wait until you can better afford it?
2. How Much Can You Afford to Loan?
You should never apply for a loan you aren’t sure you can handle. Before applying for a loan, it’s wise to consider whether this is something you can really afford. Ask yourself: How much can I afford paying in interest and deductions per month? And how much can I potentially save per month?
3. Should You Choose Refinancing or a Consumer Loan?
If you hold too much consumer debt from the past, it might be best to choose refinancing. This means that you gather all of your loans into one, so that you get all of them on one bill.
Often, a refinancing loan will give you lower interest, and thereby less to repay in total. It’s possible to get a sum paid out in addition to refinancing existing loans. This way you get the money you need to be paid out, and you get everything gathered into one loan.
4. Make a Plan
You need to make a realistic plan as to how you’ll organize your finances. Make a budget. If the budget will require significant changes to your lifestyle, you should try following it for a while before taking out the loan, to see whether it’s realistic.
You must also consider how long you’ll spend on the repayment. If you repay the loan over a long time, you will have to pay more interest, and the loan becomes more expensive than if you repay it over a short time.
Another thing that many people forget to do, is to compare different loans from different banks. It’s never been easier to compare prices, with all the free services that exist around the world.
In the UK, loan comparison websites like Compare The Market have been used for 15 years. We’re also starting to see this trend in Norway, where a lot of people are using Lanfordeg.no to find the best mortgage, consumer loan, car loan, etc. Wherever you are, there is probably a similar website you can easily find on Google.
5. Clean Up Your Debt Before Applying
Have a look at your credit score before applying for a new loan. If you have many credit cards that you don’t use, these may prevent you from being granted a new loan. The credit line on unused credit cards are in fact considered as part of your total debt, and it can’t exceed five times your income, in order for you to be granted a loan. Therefore, you should delete all unused credit and credit cards before applying for a loan.
In the same way, it might be smart to collect the loans and credit card debt you have from before, and gather them into one loan. If you’re granted a refinancing loan, you can often get a lower total cost on your new loan than if you don’t do refinancing.