4 Steps to Take Before You Take out a Loan
Monday, January 23, 2017, 6:00 AM | Leave Comment
Loans tend to get a bad rep, but we all still use them occasionally.
While they might not be an ideal solution, a good loan doesn’t have to be much of a burden, and sometimes it can provide a necessary cash boost.
However, some people don’t take the responsibility of taking out a loan very seriously.
Whatever your financial situation, rushing from one loan to another is never a good idea, especially if you are taking out loans for superfluous purchases.
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Step 1: Do You Really Need It?
The absolute first thing on your to-do list is a thorough analysis of your finances. Although it can be an unpleasant step, it will give you a realistic picture of your affairs.
Make a list of your sources of income, and all your expenditures. Think long and hard about what you intend to spend the loan on.
How much do you really need it? As enticing as they can be, loans do need to be repaid, and often with a Draconian interest rate.
If you have been thinking about taking out a loan for something as trivial as a vacation, or a luxury item, it is almost certainly not worth it.
If your reasons are of a more dire nature, and you feel like you have no other option, proceed with the next few steps.
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Step 2: Try to Save up
Instead of putting aside a part of your income for loan payments, consider postponing your purchase and saving up instead. Saving and repaying a loan have a common basis – a part of your money is put aside.
However, saving has a huge perk: you avoid paying the interest. With a bit of patience and will power, you can achieve the same results, without wasting money on exorbitant interest rates.
Maybe there are some steps you could take to lower your expenses. Or perhaps it’s time to find a better paying job? Consider your options thoroughly.
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Step 3: Educate Yourself
Before you decide to go through with your loan, you should probably make sure you understand the whole process.
If your understanding of finances is lacking, maybe you are not equipped with enough information to grasp all the complicated details. Read up on the concepts of principal, interest rate and capitalization.
Check out multiple lenders and see who is willing to offer the best terms. You might need a loan, but that doesn’t mean you should settle for a bad one. Watch out for scams too!
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Step 4: Improve Your Credit Score
Before you take that final step and apply for a loan, the smart move is to try to get the best possible terms and lowest interest rate.
Experts from CleanCredit say that repairing your credit score can not only vastly improve your chances of getting a loan, but also help you get good terms and a reasonable payment plan.
Credit score can be repaired effectively by removing negative listings from your report. Once your rating is up, you can start shopping for the best loan.
Unless you sorely need the money, loans are best avoided. However, sometimes you just can’t make ends meet in any other way, and a loan is your only solution. If that is the case, the smart thing to do is try to get the best conditions possible, and make sure you prepare a viable repayment plan.
For a more elaborate article, read The Ultimate Guide To Spending Less: 117 Tips!
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Dan Radak is a marketing professional with ten years of experience. He is a coauthor on several websites and regular contributor to BizzMark Blog. Currently, he is working with a number of companies in the field of digital marketing, closely collaborating with a couple of e-commerce companies.
