There are many reasons that people might want to borrow money. It could be that they want to buy a house or a car or perhaps something smaller like a deposit on a rental property or even necessities like food. It is a big commitment though as borrowing will cost money and take time to repay. It is therefore worth taking some time to think about whether it is a good idea to borrow the money or not. There are some main things that you should consider.

Can You Afford the Repayments?

The first thing that you need to find out is how much the repayments will be. You will find that the lender should be able to let you know how much you will need to pay and when. This will allow you to be able to calculate if this is something that you can afford. For example, if you are buying a home and moving from paying rent to a mortgage, then if these amounts are the same, then you should be fine. If you are buying a car, then this will extra money that you are spending, so you need to make sure that you can pay for it. You might be putting some money into a savings account each month and this could be used for the repayments. However, if you are not doing this, then you will need to look at where you will need to cut back your spending, so that you can afford the repayments. You will need to pay out for certain things, such as other loan repayments, food, utilities and direct debits, but you may also buy luxury items that you might be able to cut back on, such as hobbies, trips, holidays etc. It is good to look into this carefully and plan.

Will You Afford them for the full Term?

It is worth also thinking about how long the loan will last and whether you will be able to afford it for the full term. This is because some will go on for a long time and it is possible that your circumstances might change. Think about whether you will be able to cope with the costs of the loan even if you have higher expenses elsewhere. If interest rates rise, for example, it could mean that the cost of your loan will go up. You need to make sure that you will be able to afford this. Unfortunately, we cannot reply on wage rises to cover this, so it will be worth thinking about whether you will be able to cut costs in some areas to be able to accommodate this increase in cost. Interest rates are likely to rise and if you do not have a fixed rate of interest for the full term of the loan, then this could mean that you will have to pay more if rates go up.

How Much Will it Cost?

It is a good idea to calculate the full cost of the loan. Many people do not do this, but it is important to know how much extra you are paying. For example, if you are buying a home, you will end up paying around 3x the asking price by the time you have paid off a 25 year mortgage. With a home, it is likely that the value will increase and you will benefit form not having to pay rent, so it would normally be considered to be worthwhile. However, if you are buying a car and you end up paying this much more for it, you may not think it is so worthwhile as it will go down in value and not up, however it may be necessary to get to work to earn an income. With a luxury product, such as a holiday, you might want to consider whether it really is worth the extra money that you are paying for it or whether you should wait and save up or choose something cheaper.

What are the Consequences for not Repaying on Time?

It is good to be aware of what the consequences are if you do not repay the loan on time. You will normally be expected to repay in regular instalments, although this will depend on the type of loan. It can be a good idea to be aware of what the expectation is. You also should be aware of what might happen if you cannot manage the repayment. It is normally the case that you will have to pay some extra money and so the cost of the loan will increase, although this will depend on the lender. It is good to check this.