Borrowing money is a big decision. It doesn’t matter whether you’ve never borrowed before or borrowed so many times you’ve lost count. Each new personal loan presents a unique opportunity to boost your budget, but it comes with the caveat of rates, fees, and conditions.
These requirements are what can make your installment loan a fantastic financial tool in an emergency or a costly mistake.
Fortunately, the difference between these two things is glaringly obvious once you know what to look for. Here are five things you should do before you accept an installment loan.
1. Ask Yourself Why You’re Borrowing
You don’t want to borrow money for expected expenses or frivolous spending. That’s what your budget is for. It’s a tool that can help you prioritize your income and set aside cash in savings. Failing that, you can find out how to earn some extra cash before you take out an installment loan for non-emergencies.
2. Determine Your Needs
Assuming you need help with an unexpected expense, the next step is to determine a basic understanding of how much you need to borrow and what it will cost, including the loan amount and terms.
Figuring out these two things will help you scope out lenders that offer enough money to cover your bill and a repayment schedule that you can afford to follow.
3. Know Your Credit Score
This three-digit score is something most lenders will check when you first apply.
If a check reveals you have bad credit, you may not qualify for the average bank loan, but some online direct lenders may be willing to work with your low credit. That’s why it’s crucial to know what your credit is before you apply — you can target specific lenders that cater to your score.
4. Pay Attention to Rates and Terms
Bad credit or not, don’t accept one lender’s rates and terms as the standard for all loans available to your financial profile. Take the time to compare rates and terms offered by other online direct lenders to confirm you’re getting the best possible deal.
Once you’re pretty confident you’re ready to sign for a particular installment loan, read over your contract and watch for any hidden fees.
5. Refer to Your Budget
Once you know the true cost of your installment loan, it’s time to double-check with your budget to ensure it’s something you can afford.
An installment loan isn’t necessarily wrong for your finances if it doesn’t slip seamlessly into your budget as-is. It’s natural to have to tweak your spending to free up cash that goes toward this new expense.
When you do cut expenses, your essential bills are off limits. If the only way you can afford to pay back your installment loan is by putting off rent or utilities, then this isn’t the loan for you.
It’s true, borrowing money is a big decision, but being prepared can help you choose with confidence. Always do these five steps before you sign your signature to a contract. This advice will help you locate the best possible fit for your finances.