Whether you are a business owner or a gainfully employed individual, the need for money is ever present. Your steady stream of income will get you by to pay for recurring expenses and cover your day-to-day necessities. For the wage earners especially, it is more of being able to manage the cash until the next payday.
However, there will always be other ‘essentials’ that you would need to spend on but would involve a larger amount. Affordability becomes the problem because your available cash or savings cannot pay for this one-time need. In this instance, a personal loan could be the solution to address your financial handicap.
5 Things to Consider Before Getting a Personal Loan
Taking out a personal loan is easy these days. You do not need to provide a collateral or offer security to obtain cash. All you need to have is a good credit standing and stable source of income to reflect your resolve and ability to repay the debt.
But before rushing into making a decision, it would be wise to consider a few guidelines.
1. Is there a ‘Real’ Need to Borrow?
There has to be a justified reason when taking out a personal loan, whether it is to renovate your house, buy a car, to start or expand your business, education, medical or getting married.
Before deciding to borrow, consider if you can raise the funding required by saving up. With savings, you can lessen the amount of borrowing. Personal loans can then be used to cover the deficit and complete the budget you required.
Do consider also if the personal loan that you plan to take is a good debt or a bad debt. Does it help to deliver long term value or income for you? Taking a personal loan is a commitment that you need to be responsible for to ensure it serves an important purpose to you and will help you in the long run.
Unforeseen expenses may crop up that make obtaining a personal loan becomes necessary. You may be compelled to borrow to pay for unexpected medical bills, surgeries and other emergency related expenses. Personal loans are actually financial provisions which you can avail of in times of real need. It is important to ensure your income is able to support the monthly commitment.
2. Will it Improve your Financial Situation?
Many fall into debt traps. Being cash-strapped or debt-ridden is one of the hardest things to overcome. Some people take action to improve their financial situation. While the general perception that getting a loan will increase the financial burden, a good personal loan can actually help to improve your cash flow and financial position.
Credit cards are often the primary cause of debt accumulation. The so-called ‘plastic’ gives an impression of purchasing power but unconsciously brings the card user to a state of financial disarray. You can end your financial misery by paying off these expensive credit card debts (usually 18% p.a.) with a lower interest personal loan. You can also apply the same technique to your other expensive debts, by consolidating them with a cheaper loan, allowing you to save on the interest cost.
3. Determine your Cash Requirement and Affordability
Once you have established the need to borrow, determine your actual cash requirement in order to avoid borrowing more than what you really need. It is also important to assess how much monthly loan instalment you can afford to pay based on your income stream.
As a general rule, your monthly debt commitment should not be more than 60% of your regular monthly income. This is important because it will help you align the loan amount with your affordability. It will also dictate the term or period within which you can pay off the loan.
Also, retaining 40% of monthly income will leave you sufficient disposable amount for basic necessities and other regular expenses. Intelligent borrowers will never go beyond their financial capacity nor take out a personal loan only to be financially dislocated.
4. Find the Right Personal Loan Provider
Find a suitable personal loan provider that will match your objectives. Scout for the lender that offers more than just processing expediency.
Compare interest rates and repayment terms of several loan providers. That is to assure you of a level of comfort and to guarantee no mistake. Discuss the payment options with each provider lengthily, particularly if the interest is ‘fixed’ or ‘variable’ and the flexibility to make early repayment without a hefty penalty. This will help you to decide with finality on which loan provider to choose.
5. Deal with a Trusted Lender and Loan Consultant/Agent
Finally, the last thing to be aware of are upfront charges and other unnecessary fees that some lenders deduct from the loan proceeds. A trusted personal loan provider will not take advantage of unsuspecting borrowers. All legitimate lenders will never ask to pay anything upfront. Any fees will only be deducted from the loan once approved and the fees will be clearly outlined.
Similarly, all authorised loan agents will never ask you for any upfront or processing fees. Their income is payable by the loan provider once the loan is approved and disbursed. If any of the agent you have consulted previously ask for consultancy or processing fees, please be careful!
Aside from reviewing the fine print and provisions stipulated in the loan documents, be clear with your chosen lender if there are any hidden charges. You do not want any surprises when you are ready to sign. Otherwise, stay clear of personal loan provider that will burden you with ‘illegal’ charges before you even start paying for the loan.
Borrow for the Right Reasons
Personal loan is a useful financing tool for the working class in Malaysia especially during emergencies, as it can help to solve or improve an individual’s financial limitation and situation. However, it is important to consider whether it is necessary and if necessary, whether you can afford the monthly instalment, before proceeding to apply and obtain a personal loan. Hopefully, by following these guidelines presented here, you will never have to worry about getting personal loans.
This article is prepared by Direct Lending, an online personal lending platform with the mission to provide simple, safe and affordable financing to all hardworking adults. We help borrowers to find, apply and receive financing that most suit them. Our service is 100% free.