When you borrow money, what you need and can afford doesn’t always line up.
Accepting a loan you can’t afford might help at first to cover an unexpected expense, but it only delays your emergency. Eventually, you’ll have to pay back what you borrowed.
To make sure you can handle these payments, you need to compare online borrowing options before you commit to a personal loan.
3 Things to Find Out About Loans Online
When shopping around for financing, here are three of the biggest details you need to consider. They have the most influence over its cost.
Your loan amount is also called the principal. It’s the amount you’ll receive from a financial institution if they approve you for financing.
Small short term personal loans tend to span between $200 and $10,000, although individual lenders may set different ranges. You’ll qualify for a principal that falls somewhere on this scale.
2. Finance Charges
Very few personal loans issued by financial institutions come for free. Most contain fees that apply above and beyond the principal. This is a normal part of borrowing, as it’s how financial institutions make money.
There are a lot of different ways to talk about the cost of borrowing in the financial world, but one of the most accurate metrics is the Annual Percentage Rate (APR). The APR includes interest, finance charges, and any other fee your financial institution applies to its loans.
APR can range between 0 to 600%. The higher your APR, the more you’ll pay, so you’ll want to compare lenders to find the best option available.
Separately, you should consider how much all the rates and fees come to in a total dollar amount. Your lender should make it clear how much your scheduled payments will cost, and how much you’ll pay in total once you pay all your scheduled bills.
Take all this information into account to decide if borrowing is worth the extra money you will pay in finance charges.
The timing of your loan is another important factor when determining if your lender’s predetermined payments are affordable. The size of your payments may not be sustainable after a certain amount of time.
You also have to consider the frequency of your payments. Does your lender expect bi-weekly or monthly payments? This can affect how much money you have on hand for other expenses.
Plug This Information into Your Budget
Now you have the details of a potential loan, pretend it’s a current bill in your budget. What would you have to do to pay it on time according to your lender’s schedule? Don’t worry if your online loan payments don’t neatly fit into your budget. You can put fun, unnecessary spending on hold until you pay off your debt.
If you would have to stop paying other essential bills, debts, or expenses to afford this new loan, don’t sign along the dotted line. You should only ever borrow money if you can maintain your basic needs while paying it back.
Accepting the first offer you qualify for is short-sighted; you could very easily lock into something you can’t afford.
You need to compare the principal, cost, and terms of multiple offers and see how well they fit into your budget.