Loan or no loan? It can be a difficult choice. Your decision whether or not to take out a loan can be taken on the basis of various guidelines. Here are some points of attention that you can include in your consideration of whether or not to take out a loan.
If you are considering taking out a loan, it is advisable to consider in advance whether you really need the loan. Borrowing always costs you money. Because you also have to pay interest to the lender in addition to the repayment, you always pay more than you have received. Secondly, you must ask yourself how much you want to borrow. Never borrow more than necessary, because the more you borrow, the more you have to pay back. This seems logical, but in practice there seem to be many people who ‘just’ borrow the maximum amount, because it is possible.
Whether borrowing is justified for you or not is of course always strongly related to your financial situation. That is why it is important that you take a critical look at some points in your financial situation.
First of all, it is advisable to look at your income. Do you have a fixed income or is your income variable? And what is your expectation regarding your income looking to the future? Will your income rise, fall, or remain unchanged? It is important to see whether your income is sufficient to be able to pay off any loan and interest.
In addition, it is important to look at your expenses. You should ask yourself whether you can afford to pay an extra amount in installments and interest on top of your current expenses. Here too it is important to look to the future. Is it expected that your spending pattern will change considerably in the future? Are there major expenditures planned that you can already take into account? An important part of your expenses are any outstanding loans or credits that you still have to repay. If this is the case, it is advisable to find out if you can have the repayment costs of an extra loan.
Finally, it is advisable to make an inventory of whether you have savings available. Saving and borrowing at the same time can be quite unfavorable. Often the interest that you receive on your savings is lower than the interest that you have to pay on your loan. Then it is cheaper to first use your savings for an expense. If the balance of your savings account is not yet sufficient to fully cover your planned expenditure, you can consider whether you can wait until you have enough savings at your disposal or whether you can still take out a loan for the remaining amount. If you have answered all these questions, you know it. Will it be a loan for you or not?
If you have decided that you actually want to take out a loan, you must inform yourself well in advance about all possibilities and possible risks of a loan. The following step-by-step plan describes the steps that you can take to make a responsible choice.
First you must determine what type of loan is most suitable for you. The most well-known forms are the personal loan and the revolving credit. The personal loan is characterized by agreements between the borrower and the lender on a fixed loan amount, a fixed (monthly) repayment amount, a fixed interest rate, a fixed term and therefore fixed monthly charges.
The revolving credit, on the other hand, is a separate account where credit can be withdrawn up to an agreed amount. Interest must be paid on the credit amount withdrawn and the credit can be repaid in monthly installments. A large repayment amount is also often possible in between. The interest rate with a revolving credit is often higher than with a personal loan.
There are also many variations on the personal loan or the revolving credit. An example of a variant of a personal loan are loans that are specifically aimed at a specific purchase such as a car (the so-called car loan). Examples of variants on a revolving credit are, despite clear differences, for example paying with a credit card or standing in your bank account.
If you have chosen a loan type that you think fits your situation well, then you need to delve further into the details of the loan. It is important that you keep a few points in mind. First of all you need to be well informed about the options for paying back. Usually, loans are cheaper when the credit taken out can be repaid quickly. Therefore, check whether you are stuck with a fixed monthly amount or whether it is also permitted to repay a large amount in the interim without a penalty if you have the financial options for that.
In addition, it is also good to know what happens if you cannot pay a repayment term. It is wise to be well aware of the consequences for you in that case. The third point to focus your attention on is the interest rate. Some interest rates are fixed, others are variable. Certainly with variable interest rates it is wise to calculate well how high the costs of the loan will be in the most unfavorable case. This way you will not be confronted with surprises later. For the same reason, it is wise to study the details of loans and quotes in detail, down to the small print.
It is important that you request a quote from various lenders. Take the time to compare all offers and do not allow yourself to be rushed by urging financial service providers. Pay close attention to temporary offers, such as interest rates that are low in the beginning but then increase. Ensure that you are always sure that you understand all the conditions and, if necessary, get extra information if you are unclear. This ensures that you can ultimately make a responsible choice with a reliable lender for a loan that suits you.
Elsewhere on this website, under ‘organizations’, you will find information about organizations that can give you more detailed advice on responsible lending.