In a perfect world, we’d all have enough money to meet our needs. In reality, there will likely be a time when borrowing money is your best option to get ahead in life. When this happens, it’s important to know what you’re doing.
Tried and tested, here are our top five rules to follow before taking out a loan.
1. Check your credit score
Ever applied for a credit card, mortgage or other loan? Then you’ve got a credit history. This can be accessed by lenders and can determine the loan term and rate offered to you. You can check your credit file here
To stay on top of your credit score, it’s important to give accurate answers on your credit application forms, pay your bills on time, and if you run into financial trouble, get in touch with your creditors straight away.
2. Research the types of loans
The more you know, the better decision you’ll make. In Australia, there are two main types of loans
to think about: secured and unsecured. For both, you’ll also have to choose between a fixed rate or variable rate. A secured loan means you’ll have to put up a guarantee (like your car), while an unsecured loan doesn’t require a guarantee – but it will come with a higher interest rate.
Before making a decision, make sure you do a thorough loan comparison and check that you meet all the right requirements.
3. Don’t borrow more money than you can repay
Sure, it might be the boat of your dreams, but if you can’t afford the repayments – don’t borrow the money. It’s that simple. Instead, do your calculations
and figure what you can afford. Who knows, a smaller boat might be what you’re looking for after all.
4. Read the fine print
Whether you’re taking out a personal loan
for something special, or a car loan
to get you on the road, take care understanding what you’re committing to. A loan is a significant responsibility, so it’s best to be prepared. Among other things, you need to wrap your head around:
The interest rate and term length
Any fees payable
How much your repayments will be
How often you’ll make repayments
What payment methods are available
5. Have a contingency plan
Sometimes life throws us curveballs. While we don’t like thinking about it, illnesses and accidents can strike down the best of us. And if you can’t earn an income, keeping on top of loan repayments and other expenses can get tricky. That’s why it’s important to consider protecting your income with life and income insurance
On the right path
If you can live by these five simple rules, then taking out a loan could be a great option for you. But like with all big commitments, it’s important to think ahead, understand your choices, and if you need it, get expert advice