Questions to Ask Before Getting a Personal Loan
Personal loans have become a standard financial tool to help individuals meet their needs or accomplish their long-term goals. However, before diving into personal loans, asking the right questions is essential to ensure you make an informed decision.
Taking out a personal loan is a significant financial commitment, and being well-prepared will help you confidently navigate the borrowing process.
In this MoneyShop blog post, we will explore six essential questions to ask before applying for your personal loan in New Zealand.
What is the purpose of my loan?
Before applying for a personal loan, it is crucial to clearly define the purpose of your loan. For example, are you planning to consolidate high-interest debts, fund home renovations, cover medical expenses, or finance a major life event?
Understanding the reason behind borrowing will help you determine the loan amount and choose the most reasonable terms. It will also help you avoid unnecessary borrowing and ensure the loan serves its intended purpose.
How much should I borrow?
You then need to figure out how much you should borrow, pinpointed by why exactly you are getting a loan in the first place. For example, if you are taking out a loan to cover the costs of your upcoming wedding, it’s best to figure out how much you need and only request this much money from the lender.
You might not be able to afford the wedding venue cost, so that you can get a personal loan for this exact sum, but you may be able to afford your dress out of pocket to lower repayments later.
Getting exact figures rather than guessing how much money you need will stop you from gaining unnecessary debt.
Can I afford the monthly repayments?
Assessing your financial situation is crucial before taking on any new debt. First, calculate your monthly income and expenses to determine how much you can repay each month. Next, consider your existing debts, living expenses, and savings goals. Finally, use online loan calculators to estimate monthly payments based on interest rates and loan terms.
Ensure that the loan payments fit within your budget without straining your finances
What kind of finance is available?
Two types of loans are available from most lenders, secured and unsecured. Secured loans require security, such as a car, in case you can’t repay the loan. Unsecured loans do not require any collateral. However, they may have higher interest rates due to the increased risk to the lender.
When choosing a personal loan, you must ask the lender whether an unsecured or secured loan suits your circumstances. This may depend on the amount you need and if you have suitable assets for security.
What will the interest rate and fee costs be?
Once you decide on the amount you need to borrow, you must ask the lender about the interest rate and fees.
Interest rates and loan terms can vary based on credit score, income, and the lender you choose. You should research different lenders, compare their interest rates, and understand their loan terms. Some lenders may offer fixed interest rates, while others may provide variable rates.
Loans also come with various fees and charges. Ensure that you understand all the costs associated with the loan before signing any agreements. Read the fine print carefully and ask the lender about any potential fees.
How will the loan affect my credit score?
Taking on new debt can impact your credit score, both positively and negatively. Before applying for a personal loan, understand the potential impact on your credit profile. A personal loan can improve your credit by making timely payments and demonstrating responsible borrowing behaviour. On the other hand, payments or defaulting on the loan can help your credit score and make it easier to obtain credit in the future.
Do I need to know my credit score?
You don’t have to know your credit score before applying for a loan, as the lender will check this on your behalf. However, assessing your credit rating beforehand is a good idea because your credit score can affect your ability to get a loan and the interest rates offered to you.
In New Zealand, you can get a copy of your credit report from a few specific credit reporting companies.
Apply for a loan
If you want to apply for a loan, we make the process as easy and stress-free as possible! With competitive rates, streamlined online service, and helpful loan information, the MoneyShop team are known as New Zealand’s most trustworthy loan provider. Contact our friendly team if you want to talk about small or large loan options in New Zealand.