No one wants to admit it, but there are times in life when a loan becomes necessary and can help steady one’s personal finances. The truth is, plenty of responsible people find themselves needing extra cash for legitimate reasons.
Perhaps you have some unforeseen medical expenses or your car has broken down. Maybe your credit card payments are high and you want to consolidate what you owe under a single loan, with a lower interest rate.
Whatever the reason, there are times when it can help to take out a loan to meet your financial needs.
Here are some things to consider before applying for a personal loan:
- Can you afford the payments?
Sometimes people in desperate financial situations will take on loans with large payments they cannot afford. Before you take out a loan, create a daily budget with all your expenses, including loan repayments. If your expenses outweigh your income on a regular basis, you should probably think twice about a loan.
Some people fall into a trap, assuming they will find a way to cover the payments through a second job or a side hustle. That may be true, but make sure you have those extra sources of income in place before you take out the loan. Otherwise, you’re just creating unnecessary stress for yourself.
- Is what you need from the loan essential?
Essential means just that: you need a working vehicle to get to your job, for instance, or you need to fix your furnace before winter sets in. Some people stretch this notion to vacations or home renovations, but are those really essential purchases? If you’re using the loan to finance a lifestyle you can’t realistically afford, think twice.
- You can pay the loan off early
In some situations, you know you have a bulk sum of money coming in, such as a tax refund or an inheritance, and you need the loan to help you along until the funds arrive. In those situations, you can take out a loan and repay it as soon as you receive the expected funds. Just make sure your loan has no prepayment penalties.
Choosing a Lender
A number of personal loan lenders have appeared in Canada over the last few years, offering relatively small loans (usually under $10,000) and an online application process. For instance, SkyCap Financial, based in Kingston, Ont., offers alternative financing to Canadians in the form of loans under $10,000.
No matter which lender you choose, make sure your loan is for legitimate reasons and do your homework to make sure you can afford it.