An emergency can pop up at any time and it can be easy to opt for a loan to help you out in an unexpected time of need. But it can also be just as easy to find yourself in a tough spot financially if you don’t take the time you need to work out if the loan is affordable in the first place. Thankfully, there are many ways you can ensure you are borrowing responsibly and a number of different options available if you find yourself in a financial bind.
Do I Need the Loan?
There are many reasons why you might think that you need to get a loan and it’s important to ensure that it’s a well-considered decision before you do so. Some of the more common reasons you may consider getting an unsecured loan include:
- Unexpected bill
- Emergency (broken down boiler or a car repair for example)
- Bridging the gap between pay days
- Shortfall in wages
Making impulsive decisions when it comes to your finances is never a good idea. It’s easy to convince yourself that you need a loan in the moment, particularly if you haven’t given yourself time to plan or assess your financial situation properly. Granted, a serious emergency might not allow enough time for you to undergo an in-depth financial self-assessment, but there is always time to decide whether a loan is indeed necessary.
An unexpected bill or an emergency for example, are just a couple of reasons when getting a loan may be helpful. However, if you’re after an outfit for a party or money to spend on a night out, it might be better to consider whether you really need short term credit or if there might be a better alternative available to you.
Can I Afford to Borrow?
So, you don’t have enough to cover an unexpected bill this month and now you’re considering getting a loan. Once you’ve decided that you do need the loan, start out by assessing your financial situation and looking at your income and expenditure for the coming month.
Do you have any other financial commitments outside of your usual priority expenses, like new school shoes for the kids or any forgotten financial obligations that could take you by surprise? Consider these first and work out how much extra funds you’ll need to have available the following month in the event that you do take a loan. Remember you’ll have to cover the interest as well as the principle amount you borrowed. You can also make use of a free loan calculator if you want a rough guideline of how much a loan may cost you.
Do Your Research
Many online lenders provide instant short term loans which may be suitable for your needs, but with so many offerings available, it’s important to spend some time doing your research and shopping around before choosing a lender to borrow from.
Short term high cost credit loans may have higher interest rates than other credit options like credit cards for example, though this will vary from lender to lender. Some lenders may also offer a fixed rate of interest for a period of time while others may offer a variable rate so it’s worth looking at how much your loan will cost you over the life of the agreement, to determine if you’ve selected the best option for your needs.
Depending on the type of credit you opt for, the interest rate you pay may also differ based on your credit history and the information you provide at the time of your loan application.
Explore Other Options
A loan can be incredibly useful during a time of need, however there might be other alternatives you may want to consider before taking the plunge.
Use your savings
Even if your savings fund was meant for something else, it can still be useful in a financial emergency. Just remember to replace any funds you remove from it!
Consider an overdraft facility
Most banks offer an overdraft facility depending on the type of account you have with them, and their interest rates may be lower than with most other types of loans. You may need to apply for consideration.
Ask friends or family
This is usually the very last option for most people as there is always the concern that relationships can fracture if the money isn’t repaid on time. If you’re really concerned, draw up a signed agreement which you both can agree to and do your best to pay it all back – you might be surprised at how willing they are to help!
If you’ve exhausted all alternative options and you’re sure you can afford to borrow, you may then consider getting a loan. As always, spend time assessing your own personal situation when deciding on the best type of credit for you.
