When you’re in need of financial assistance, it can be difficult to know where to turn. Whether you’re looking to embark on a personal project or you’ve run into a spot of trouble due to a recent job loss or other change of circumstance, money is the first thing we often think about.
One of the options available to you if you’re looking for help is to take out a loan. This might seem like a catch-all solution; after all, it’s basically free money, right? Well, it’s not helpful to think of it that way. Taking out a loan comes with its own benefits and drawbacks, so here’s our beginner’s guide to whether or not it’s worth taking out a loan in your personal circumstances.
You’ll need to pay it back
While it may seem obvious, the first thing that many people overlook is that you will need to pay loans back. Every loan has a different repayment plan attached to it, and they’ll differ in details like frequency and amount, but there is no such thing as a free loan; that’s why it’s called a loan, after all. That’s why you need to think carefully about whether you’ll be in a position to make repayments after you’ve dealt with whatever you need to deal with right now. If you can’t make regular repayments, then a loan may not be an option for you.
There are loans for all kinds of circumstances
If you think that loans aren’t available for you based on your circumstances, there’s a good chance you’re mistaken. For example, there are loans for people on benefits out there, so even if you don’t have a regular income, you can still avail yourself of a loan if you need to. Similarly, if you want to build an extension on your home or go on holiday, you’ll find loans available that will fulfill those purposes as well. Just remember the golden rule: you will need to pay the loan back sooner or later, so don’t apply without a concrete repayment plan.
You’ll need good credit…mostly
Good credit is one of the cornerstones of taking out a loan. Lenders will usually perform credit checks to make sure you’re financially solvent; this is how they reassure themselves that you intend to pay back the loan you’re taking out. However, if you don’t have good credit, there’s no need to panic. You’ll find loan options for people with bad credit out there, and you’ll also find credit-builder loans that specifically exist to help you build up your credit if you have a poor history. When it comes to loans, you’ll always have options available to you.
Not all lenders are the same
If you apply for a loan but don’t like the terms or how the lender interacts with you, then you have other options. Not all lenders are created equal; some are better than others, which will often manifest itself in customer reviews, so it’s worth researching before you even think about applying. Picking a good loan is like choosing a good mortgage lender (which is, in itself, a type of loan); many of the same principles apply, so make sure you’re making the right choice before you put your signature down on anything.
A loan isn’t right for long-term financial trouble
If your financial trouble is long-term – that is, if you think you’re going to be struggling with your finances for a while – then a loan isn’t the right option for you. After all, while you may enjoy the short-term relief that the initial cash injection provides, there will come a time when you’ll need to make repayments, and once you’ve burned through the amount you’ve borrowed, you’ll just have repayments on top of everything else you were struggling with. Loans are often appropriate for short-term financial trouble or personal projects rather than lifting yourself out of serious financial straits.
Secured and unsecured loans are different
You might hear lenders throwing around terms like “secured” and “unsecured” and be uncertain as to what they mean. Secured loans are usually put up against the value of something you own, be that property, a vehicle, or some other possession you have. Conversely, unsecured loans don’t have any collateral secured against them; they tend to offer lower amounts, but there’s nothing physical at stake if you don’t pay. You may require a different kind of loan depending on your personal circumstances, so again, make sure you’re doing extensive research before you apply.
Your lender may be open to negotiation
Before you apply for your loan, it’s worth talking with your lender to ask whether repayment terms are negotiable. They likely lend money to many people in less favorable financial circumstances, so many lenders will need to be flexible with their money and their timescales. It’s worth knowing ahead of your application whether you can move the schedule around so that if things do become difficult for you with regard to repayments later down the line, you’ll know whether or not you have options available.
Only you can know in the end
Naturally, only you can really make the decision about whether or not a loan is worth it for you. While guides can help you to understand the finer details of what’s involved when taking out a loan, they can’t see your bank account, nor can they know your circumstances. That’s why it’s important to think carefully and deliberately for a long time before deciding whether to get a loan. Whatever you do, don’t make a snap decision; you may come to regret it in the future.
