When looking for a loan you probably most worry about interest rates and the length of time you will be paying the loan. Nowadays, there are many types of loans / credit around and they can be very tempting since they promise instant gratification. However, there are other thing to consider before you get to this point. Therefore, before, you even start to compare interest rates, get out a paper and pencil and start a list to help you evaluate whether or not a loan is a good option to consider. Make 3 headings, can you afford it, do you really need the object the loan is for, and are there better alternatives. We will take these one at a time so start brainstorming.
We will start now.
CAN YOU AFFORD IT?
There will be an extra monthly obligation. Consider the length of time you will have this payment. Are there future necessary purchases you will need? If you do not have extra money, can you make adjustments? Are there things you are willing to give up? In an emergency, will that payment cause an undue burden? Will you need to work more overtime or get a second job to cover the payments and if so is this feasible or will it drastically change your lifestyle?
This brings us to the next topic.
DO YOU REALLY NEED IT?
What is the purpose of the loan? Do you really need that new car or hot tub or do you just want to keep up with the Jones? Is it something you will get enough use to justify the payment? Would it be worth adding an extra payment? Is there a cheaper alternative. DO you really need the top of the line or are there compromises you will be happy with For instance, is this something you will not use much so it may be better to rent. Is this something you have longed for or is it a new passion that may soon bore you? Write down the pros and cons of making this purchase and walk away When you come back if this is still a sale you want to make then move on to the next step.
IS THERE A BETTER ALTERNATIVE?
Can you withdraw from savings without depleting it? Could you sell something of value that you do not really need or have a yard sale? Can you put off the purchase for a few months and concentrate on saving. Can you team up with others and share the object? Can you buy a cheaper version, or even used. Can you barter for it?
Once you have answered all these questions and you still feel a loan is worth it then you can start to consider interest rates and the length of the loan.