People are borrowing money again, according to new data from TransUnion. The credit bureau reveals 22.5 million American consumers have at least one unsecured personal loan in their name — that’s a 12.9% increase from the year before.
While borrowing money may be growing in popularity, it’s still a big decision that can affect your financial wellbeing. You need to know whether this common practice is something you can afford. Otherwise, you risk causing an even greater financial problem with a loan you can’t pay back.
To keep you from making that enormous mistake, keep reading. This article outlines three things you can do before you borrow to make sure it’s right for you.
Table of Contents
1. Check Your Credit Score
Before you start looking for a loan, you should check in with your credit. This score will give you a good idea of what rates you might qualify for according to risk-based pricing. Risk-based pricing is the practice of determining interest rates and loan terms based on your unique creditworthiness.
Lenders that follow risk-based pricing often offer borrowers different rates based on the individual’s estimated risk.
Other lending companies like MoneyKey don’t follow this practice. They assess your creditworthiness and determine your loan in other ways. You can find options at MoneyKey without worrying about risk-based pricing for a variety of installment loans and lines of credit.
2. Read the Rates, Terms, and Conditions
Rates, terms, and conditions are three important details of your loan that tell you everything you need to know about paying back what you owe. Repaying your loan on time is crucial, so you’ll want to read these details carefully.
Let’s be honest — rates, terms, and conditions can be tedious to read. Legitimate lenders should simplify their contracts by using plain English so that all their borrowers understand their rights and obligations.
If you read a contract that seems like it’s written in legalese, consider your next option carefully. Some shady lenders purposefully create dense contracts, hoping you won’t read them so that you overlook hidden fees.
Looking at the APR (annual percentage rate) is a quick way to catch any hidden fees. It shows the true cost of borrowing by calculating interest, finance charges, and other fees. If an APR is unusually high for the interest and fees you’ve seen, it could be due to undisclosed fees.
3. Insert Your Payments into Your Budget
Once you know how much your loan will cost you, you can drop these payments into your budget. Treat it like any other important bill that already exists in your budget. You should be able to cover it all on every due date.
Don’t worry if you can’t automatically afford a payment. Can you reduce non-essential spending during your repayment? Hitting pause on subscriptions, takeout, and other fun expenses can free up what you need to cover your new loan.
Cut as much as you think is realistic but keep your hands off the essentials. If you can’t afford to repay your loan without paying another important bill late, this isn’t the right option for you.
Now You Can Borrow with Intention
Borrowing money online is a big deal. Check in with your budget, loan contract, and credit score to ensure it’s the right deal for you.