Loans and Finance

When choosing a loan, there are many different factors that you need to consider. However, one of the most important is which of the loans you can afford. If you are borrowing money you will need to consider a selection of different costs.

Some loans may need a deposit and so you will need to have some money available to pay it. This is normally only necessary when you are taking out a mortgage, but it can sometimes be necessary with some larger loans such as car loans. Therefore you will need to think about where you will get the money from to pay the deposit. It can take a long time to save up for one and it is not normally possible to get a loan to pay for a deposit and so you may just have to be patient and wait until you have saved. If you are really keen on getting the loan, then you should be able to stay motivated enough to save up the money that is needed.

It is also good to think about how much it will cost you to borrow the money. Calculate the cost of the loan by working out what the interest payments will be and multiplying that by the number of repayments that you will need to make. Then add on any fees and you will have the total cost of the loan. It is then worth thinking whether you think that the loan is worth that cost. Think about what you are buying with it and whether you think that the item is worth that extra money. You may be surprised about how much more money you will have to pay for that item and it may put you off and so it is well worth doing the calculations. Some loans, such as credit cards, do not have a structured repayment plan and it is much more difficult to calculate the cost, but do your best by considering how much you are likely to pay back each month.

Another very important factor to consider is whether you will be able to afford the repayments. You need to consider whether you will be able to pay for each of those repayments while you are paying all of your usual expenses as well. If you already struggle to make ends meet, then it would be unwise to add additional expenses to your monthly burden. If you are not sure whether you will be able to manage then it is worth doing some calculations. Make a note of everything that you have to pay out each month and see whether there is enough money left to cover a loan repayment. Even if you can just about afford it, it is worth thinking hard. Consider what might happen should your situation change and you have higher expenses or lower income and consider whether you think you will still be able to make them. If not, you could find yourself accumulated even more debt or even getting into legal trouble due to not paying back what is owed.

It can be difficult if you have a long term loan, to consider whether you might be able to make the repayments in the future. However, if you can save a bit of money each month towards any times when you might find repayments difficult, this could really help. If there is more than one income coming into the house, this will help as well, because if one person loses their job or cannot work, there will be another income coming in. If you have some savings behind you already, this could help, although it may be more sensible to use these rather than getting a loan because it will be cheaper.

Taking out a loan is a big responsibility even if it is just a small amount of money that you are borrowing. The costs can add up very quickly if you do not manage to make the repayments and so it is a good idea to work out whether you can definitely afford one. The costs can quickly accumulate if you miss any repayments and so you need to make sure that you are confident you will be able to make these repayments and therefore make sure that you avoid those costs.

Insurance is something many of us have for a selection of things. It could be cover our car, home, pets, dental care or something else. Many insurance companies offer a lower rate if the insurance is paid in a lump sum covering a year rather than in monthly instalments. In order to get the cheaper rate, many people want to avoid paying in instalments but pay the lump sum. However, this can be a large chunk of money which may not be easy to get hold of. Therefore they may be tempted to borrow the money so that they can pay it and get it cheaper.

It is really important to be aware that borrowing money is expensive. You will be charged interest on the money that you borrow as well as possibly fees as well. You will also have to pay charges for setting up the loan in some cases. It is therefore really important to calculate the cost of the loan and also calculate the extra cost of paying monthly instalments. You will then be able to work out which option is the cheapest for you.
It is very likely that the loan option will be dearer, but there are some cases when it definitely will not be. This could include an interest free credit card. You may be lucky enough to be able to sign up to a credit card where you get a certain amount of time to borrow money for free. These can be extremely useful but they need to be used with care. Once the interest free period is up they will tend to go onto that lenders standard variable rate which can be very high. This is something that you will want to avoid because you will probably end up paying a lot more than you would if you pay monthly insurance payments. So make sure that you pay some off each month or save up money each month so that you are able to pay it all back just before the interest free period ends.

If there is no monthly option or you cannot afford the monthly option then you may only be able to afford the insurance if you take out a loan. This then becomes more complicated as you have to decide whether you feel it is worth paying the extra cost of a loan to get the insurance. It will depend on how high you assess the risk of not having the insurance. If it is car insurance then it is a legal requirement in some countries to have it and so you will not be able to drive without it. This means that you will have to decide whether driving is so important that you are prepared to get a loan to do it. Many people drive to work and have no other way of getting there. If this is the case for you then you may have little choice. Often it is not so obvious and you will have to decide what you think. It depends on how high you feel the risk is of not having the insurance. You may decide that you want to insure your contents because you have a lot of expensive things that you could not afford to replace or you may decide that it is not worth bothering to insure your contents if they are not worth that much. For pet insurance or dental insurance you may not b able to afford to pay for treatment without having the insurance so you may feel it is worth it. It can be a tricky decision and one that is well worth discussing with someone else. If you are not confident doing the calculations or you are just unsure what to do then having someone else to help you can be really helpful and can help you not to make a big mistake with your calculations.

So choosing whether to take a loan to pay your insurance may not be such a simple decision as you imagine. As well as considering the price, which will be a big factor, you have to also think about whether you want to risk going without the insurance and if not, whether you can afford it. If you do decide to go for a loan, then it is important that you pick one that is competitive on price and that you will be able to afford to repay.