Borrowing money is the way of the world. However, taking out a loan should still be no light decision. Here are some things to think about first before looking for a lender.
Can you afford to take out a loan?
It’s easy to view borrowed money as free money, without taking into account the fact that you’ll one day have to pay it all back (plus interest). Before taking out a loan, consider what big expenses may lie on the horizon. Have you been saving up to buy a place or get married? Are you expecting a child? Will be leaving your job soon, or retiring? If there’s a big life change ahead, you may need that extra money in your pocket. In all cases, calculate how much you’re likely to have to pay back on a monthly basis and how this will affect your other expenses.
Cleaning up your credit rating
A low credit rating can affect your chances of taking out a loan. There are many ways to repair your credit score and there are companies such as Park View Credit Repair that can help give advice. Your bank may also offer a credit builder loan or credit building card. Also be aware of dodgy details on personal accounts that could be damaging your credit score by hinting suggestions of fraud. For example, if you have two accounts – one registered to a maiden name or previous home address – these could be flagging up warning signs during a credit check. Similarly, not being on the electoral register, whether you plan to vote or not, could flag up warning signs. Get on the electoral register and fix these faulty account details to boost your credit score.
Using a loan broker
A loan broker can be used to compare the rates of all available loans out there and find the best one for you. You may be able to find a specialist loan broker for your needs (e.g. a mortgage broker or a business loan broker) who can then do the negotiating for you. Such brokers will of course charge for their services, but you could make up the money simply from them finding cheaper interest rates. An alternative may be to simply scan comparison sites such as Compare the Market for loans, however not all loans will be featured on these sites.
Considering a debt consolidation loan
If you’re already paying off other loans such as a mortgage and car loan and possibly credit card debt, taking out another loan could complicate things. A debt consolidation loan could be the way forward – this can pay off all your existing loans and put all your existing debt in one easy-to-manage monthly payment. Many banks will offer these loans, but like regular loans you can shop around. However, remember that these are not the only types of loan that are avaliable. A merchant cash advance isn’t a loan. It’s a cash advance given to you based on credit card sales that are deposited in your business merchant account.
Borrowing from friends and family
An interest free option could be to borrow from friends and family if they have the funds. This can be useful for small loans. However, do note that not paying back a loan to your friends and family could put a strain on your relationship and therefore shouldn’t be viewed as a simple get-out option to a regular loan with interest.