Questions to Ask Yourself Before Applying for a Loan

You’re mulling over the possibility of making some type of purchase. Since you don’t have enough cash on hand to handle the transaction, applying for a loan is the only real alternative. Before you proceed, take a moment and ask yourself a few questions. Doing so will make it easier to determine what type of loan you want and focus on lenders who are most likely to work with you.

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How Much Do You Need?

Look closely at how much you will need to complete the purchase and deal with any related expenses. The first part is easy but the second may require spending a little time coming up with some estimates. If you do a good job, there won’t be any out of pocket expense to you.

For example, the plan is to purchase a new water heater with the money from the loan. Along with the purchase price, factor in any costs related to the delivery and installation. You may also want to allow the cost of having the old water heater hauled away. That ensures there are no surprises that leave you short and scrambling to come up with more cash.

What Type of Installment Payment Can You Afford?

You will need to pay off the debt using a series of installment payments. How much will fit into your monthly budget without causing hardship? Be realistic about what you can pay and still retire the loan in a reasonable amount of time.

You don’t have to share this figure with anyone. Keep it in the back of your mind and see what sort of terms the lender offers. You may find that the installment payment the lender requires is actually lower than what you were prepared to pay.

How’s Your Credit Score?

When was the last time you looked at your credit score? If it’s been a while, now is a good time to do so. Since you have no idea which credit bureau a lender will consult, pull copies of all your credit reports and go over them carefully.

The goal is to ensure that you can account for every line item on those reports. Knowing the score also makes it easier to focus on lenders who are most likely to give your applications serious consideration.

Would a Secured or Unsecured Loan Be Best?

Would you like to receive an unsecured loan or a secured one? The former does not require you to pledge any type of security or collateral. The latter would mean committing some asset for the duration of the loan.

Depending on your credit score, a secured loan could allow you to lock in better terms, including a lower interest rate. Feel free to try for each type and see what happens. If the terms for an unsecured loan turn out to be equal to and maybe even better than what someone else offers with a secured loan, you won’t have any problem deciding which offer to accept.

Remember that the idea of a loan is to better your situation in some manner. Proceed with care and always weigh each option carefully. In the long run, you’ll save money and still be able to get whatever you want.