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What to do before taking out a loan

We are constantly bombarded with routes out of debt these days. Between manageable monthly payments, consolidating your debt and loan offers it can be hard to know which way to turn.

Sometimes, taking out a loan can seem like the only option. If used properly, loans can be an excellent way of giving yourself some financial breathing space; however, there are a few things to consider before making the commitment. Loans should only really be considered if all other avenues have been exhausted and explored.

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Before taking the plunge there are a number of things to ask yourself but firstly do some research and find out what kind of loan would best suit you and what sort of deals are available.

The best way to do this is to use a comparison site to explore your options. Compare unsecured loans with secured offerings and look into what sort of discounts and perks you can get with some loan companies. These sites can compare hundreds of loan providers in a matter of minutes and by filling in a few details and hitting the search button you can see your various options instantly.

Explore each loan offer and discuss what you think would be the best payment plan for you. The small print is important to consider and before making any decision, go through the conditions with a fine-tooth comb, you don’t want a nasty surprise a few months down the line.

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Once you think you know the sort of loan you’re going to need and what it’ll take to use it in the correct manner don’t rush into anything; sit down and ask yourself the following questions.

Do I really need this money?

The key to this question is the word ‘need’. You may well want something costly and are considering a loan to help pay for it but do you need to make the purchase.

Necessary costs are things like repairs around the home, new goods that are essential to your life or work and medical bills. A new car or wardrobe are not necessary and therefore should be bought using spare cash or savings rather than a loan.

Can I afford to make the payments?

Work out a budget, factoring in monthly payments plus your incomings and outgoings.

If you can afford it then great, but if you’re too close to falling into more debt try and avoid taking out a loan. Stop payments and you’re in trouble and if you can only just afford them each month think about the little surprises life throws at us; you might need a bit of spare cash for something unexpected.

How long will it take me to pay it off?

The quicker you can pay off your loan and rid yourself of debt the better, so make sure you have an idea of how long it’s going to take. Setting yourself a goal to be debt-free is a great motivator too and helps to combat the temptation to miss a payment or spend more.

If you’ve answered all these questions honestly and thoroughly then you are in the perfect position to make a decision about taking out a loan. When used correctly loans are great but use them as a quick fix to your money woes without the proper consideration and you could be heading for financial meltdown.