6 questions to ask yourself before getting a personal loan
Personal loans are becoming increasingly popular for many Australians who are looking to finance their bigger purchases, however, it’s important to carefully consider if it’s the right option for your needs. Here are some questions you might want to ask yourself before applying for a personal loan.
1. Why am I getting a personal loan?
The first and most important question is: Why?
Maybe you’re looking to renovate your house, buy a car or consolidate your debts? It’s important to first figure out your purpose so you can determine whether it’s necessary to apply for credit.
2. Do I really need to borrow money?
Credit may not be the right option for everyone. Fees, charges, and interest rates can make credit very expensive to manage. If you’re not in the right financial shape or if you don’t have urgent financing needs, you might want to think about alternative ways to reach your financial goal without the need to borrow, such as saving up for your purchase or goal instead of applying for credit.
3. What is my credit score?
Credit checks are an unavoidable part of borrowing, as lenders use credit scores, credit reports and their own credit assessment criteria to review your personal loan application.
Knowing your credit score and reviewing your credit report can help you get an idea of the likelihood that your application will be approved. If there are any errors on your credit report, take the necessary actions to fix it so your credit report is correct and up to date before you apply.
If you haven’t yet, you can check your credit score for free at Equifax.
4. Can I afford the repayments and the fees?
While personal loans can provide cash for many different needs, it’s important to make sure you only borrow what you can afford to repay. You should also consider how taking out a personal loan could affect your future finances, as the added financial responsibility could mean that you may not be able to enjoy the same lifestyle choices.
To help you find out if you’re able to afford the personal loan you desire, you can try our Personal Loan Calculator to work out what your repayments could be.
5. What are the terms and features of the personal loan?
Aside from checking the loan eligibility criteria, it’s also important to have a clear understanding on the loan features as well as the terms and conditions. Here are a few specific loan questions to consider:
- Do I want a fixed or variable rate loan?
- How much will I pay in interest?
- How long will I have to pay back the loan?
- Is the personal loan flexible?
- Are there any fees attached to the loan?
- Is the loan sustainable for my circumstances?
6. Can I get a better deal?
There are many different types of lenders in the market that offer personal loans for different credit needs. Do your research and consider looking beyond the big banks to find lenders with competitive rates.
Remember, only apply for credit when you really need it. Before you sign the dotted line, factor in every aspect of the personal loan to ensure it’s the right loan for you and your financial circumstances.