Taking on debt is a major decision and not something that can be rushed into without thinking it through. That's why most financial experts advise you spend a little time to go through the information section and answer the following questions.
How much do I actually need to borrow and how much am I able to afford?
What is a pragmatic repayment period for me?
What are my other borrowing options?
Should I go for a secured or unsecured loan?
What do I need to know about rates?
How do I find the best loan company or loan broker?
How much do I need to borrow and how much can I afford?
The quantity of money you want to borrow will most likely be the same as the price of the holiday, vehicle, or any other item you intend to purchase. In any case that's a call for you to make, the only advice I'm able to offer is to be sure you only borrow the amount of money that you really need that you can afford the repayments.
To work out how much you can afford to pay back you'll need to have a money management plan. This plan contains your position, all household income and all household expenditure and helps you to spot what you need to do with any left over cash at the close of the month. Once you have finished your intention you can see how much you can realistically afford to pay each month. That amount should then figure out how much you borrow and over what period of time you repay it.
What is a pragmatic repayment period for me?
Its really temping to choose a long repayment period as it means you can either pay back a smaller amount each month or even select increase the amount of money you borrow. However you need to remember that the longer the term of the loan the more cash you will pay back in total (interest and charges) .The repayment table below demonstrates the additional value of longer repayment periods.
However it's equally necessary to not end going for the shortest possible repayment period you can afford and leaving your monthly balance sheet at zero with no room for movement should you spend more than you budgeted for in any specific month. So always be careful to make allowance for any surprises and make sure you leave enough funds so that you can enjoy yourself from time to time.
Example repayment table (at 10%)
Repayment period 3 years 5 years 10 years
Amount borrowed $10,000.00 $10,000.00 $10,000.00
Total interest paid back $1,543.40 $2,621.60 $5,573.60
Monthly repayment $320.65 $210.36 $129.70 respectively
What are my other borrowing options?
Before taking out a personal loan you should usually study what other alternatives you have open to you to finance that purchase. If you have savings then it will definitely save your money to employ the savings instead of paying interest on loans. Should using savings not be possible for you other forms of borrowing include the following.
Overdrafts. If you simply need money for a relatively brief period of time and only now and again then you need to consider an overdraft. Overdrafts aren't commended for medium and long term borrowing.
Credit Card. Credit Cards are another excellent kind of short term lending. If you just need a bit of help from time too time then cards can be exceedingly convenient and flexible. Most cards also offer cash back, 0% balance transfers for the first six months or low introductory rates. The sometimes higher APR of mastercards once the "offer" period ends means that they are not as cost effective as personal loans beyond the near term. Re-Mortgage. Another option for homeowners is re-mortgaging their homes to open the capital tied up in the property and with the heavy expansion in house values of the previous few years most folks do now have significant equity in their home. Rates for this kind of borrowing are normally low but it's worth bearing in mind that you might be paying off your mortgage well into your previously planned retirement.
Should I go for a secured or unsecured loan?
Personal loans can be either secured or unsecured. A secured loan is secured with a major asset, usually the borrower's home. They're cheaper than unsecured money loans but if you constantly miss repayments (default on the loan agreement) you risk losing your house as it can be snatched by the lender and sold to repay your debt, though this is mostly a final resort for most. Banks. Secured loans are commonly used when borrowing bigger quantities of money over a long period of time.
How much do I actually need to borrow and how much am I able to afford?
What is a pragmatic repayment period for me?
What are my other borrowing options?
Should I go for a secured or unsecured loan?
What do I need to know about rates?
How do I find the best loan company or loan broker?
How much do I need to borrow and how much can I afford?
The quantity of money you want to borrow will most likely be the same as the price of the holiday, vehicle, or any other item you intend to purchase. In any case that's a call for you to make, the only advice I'm able to offer is to be sure you only borrow the amount of money that you really need that you can afford the repayments.
To work out how much you can afford to pay back you'll need to have a money management plan. This plan contains your position, all household income and all household expenditure and helps you to spot what you need to do with any left over cash at the close of the month. Once you have finished your intention you can see how much you can realistically afford to pay each month. That amount should then figure out how much you borrow and over what period of time you repay it.
What is a pragmatic repayment period for me?
Its really temping to choose a long repayment period as it means you can either pay back a smaller amount each month or even select increase the amount of money you borrow. However you need to remember that the longer the term of the loan the more cash you will pay back in total (interest and charges) .The repayment table below demonstrates the additional value of longer repayment periods.
However it's equally necessary to not end going for the shortest possible repayment period you can afford and leaving your monthly balance sheet at zero with no room for movement should you spend more than you budgeted for in any specific month. So always be careful to make allowance for any surprises and make sure you leave enough funds so that you can enjoy yourself from time to time.
Example repayment table (at 10%)
Repayment period 3 years 5 years 10 years
Amount borrowed $10,000.00 $10,000.00 $10,000.00
Total interest paid back $1,543.40 $2,621.60 $5,573.60
Monthly repayment $320.65 $210.36 $129.70 respectively
What are my other borrowing options?
Before taking out a personal loan you should usually study what other alternatives you have open to you to finance that purchase. If you have savings then it will definitely save your money to employ the savings instead of paying interest on loans. Should using savings not be possible for you other forms of borrowing include the following.
Overdrafts. If you simply need money for a relatively brief period of time and only now and again then you need to consider an overdraft. Overdrafts aren't commended for medium and long term borrowing.
Credit Card. Credit Cards are another excellent kind of short term lending. If you just need a bit of help from time too time then cards can be exceedingly convenient and flexible. Most cards also offer cash back, 0% balance transfers for the first six months or low introductory rates. The sometimes higher APR of mastercards once the "offer" period ends means that they are not as cost effective as personal loans beyond the near term. Re-Mortgage. Another option for homeowners is re-mortgaging their homes to open the capital tied up in the property and with the heavy expansion in house values of the previous few years most folks do now have significant equity in their home. Rates for this kind of borrowing are normally low but it's worth bearing in mind that you might be paying off your mortgage well into your previously planned retirement.
Should I go for a secured or unsecured loan?
Personal loans can be either secured or unsecured. A secured loan is secured with a major asset, usually the borrower's home. They're cheaper than unsecured money loans but if you constantly miss repayments (default on the loan agreement) you risk losing your house as it can be snatched by the lender and sold to repay your debt, though this is mostly a final resort for most. Banks. Secured loans are commonly used when borrowing bigger quantities of money over a long period of time.
About the Author:
Peter Parker is a money analyst with an astuteness for finance and insurance. In recent years he has taken up to provide independant financial advice on payday loan and business loan with his informative articles.
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