We all want more money than we currently have. It is obviously recommended to try working hard on job or trying business ventures in order to earn more money. However, sometimes the need of money is urgent and loan is the only option most people have to access the required amount of money. But should you really try taking a personal loan? It can be very hard to repay at times and wise people would think at least once before applying for a loan. This article discusses some of the most crucial questions you should ask yourself if you are planning to take loan.
1: Need VS Want:
First of all you should consider the level of urgency. Do you really need the money? It is quite possible that you just want something but it can be avoided or delayed. Emergency health problems, for example, mean that you truly need money and hence personal loan can be the option. On the other hand, if you are looking for money to go on a picnic tour, you may want to delay your plans until you actually have your own money.
2: How much you need?
Even if you need quick money it is essential to understand your needs. Many people would take extra money when taking loan. Precisely measure your needs and try to take the closest possible amount. Extra $5,000 may not seem a big problem but the later interest payments can be substantial.
3: How much can be borrowed?
You will most probably be borrowing money by putting your personal assets as security. So it is also important to ask yourself that how much you can actually borrow. It is also important because you will be able to make other arrangements in case your assets are unable to provide you the required amount of loan security.
4: Will the money actually help?
You would be taking loan for a specific reason. For example, you want to establish a small business and you are in need of money. You should ask yourself if the amount you are going to raise will actually help you in your purpose. Suppose you need $50,000 as the minimum amount to establish your business. Taking merely $30,000 will not help in establishing the business and the whole money may be wasted.
5: Do I have established future cash flows?
One should never consider taking loan if future cash flows are not confirmed. If you are taking it for business, consider if you have the ability to pay interest in the initial periods when your business is still growing. It is extremely important to address this question as you can end up losing your personal assets if you remain unable to pay the interest and principle amount.
6: Have I understood all conditions?
Formal loans can be very complex. It is therefore important to ask yourself if you have sufficient knowledge and understanding of various terms and conditions of your loan contract. There may be certain hidden clauses or unfavorable terms and you must have complete understanding of these clauses in order to avoid future problems and tensions.
7: Have I considered all the different alternatives?
A vast range of different types of loans are available in the market. You can opt for short term loan, long term loan, secured/unsecured loan and specific business loans. You can also raise money through informal channels. Each of these types can have certain advantages and disadvantage. Hence, it is important that you consider all the alternatives and their respective merits and demerits before making any final decision.
