25 Nov 3 Things to Consider Before Applying for a Loan
3 Things to Consider Before Applying for a Loan
The car broke down, an unexpected medical bill was delivered to your mailbox, or you are just short on your holiday gift list. Reasons for applying for a loan can range in levels of importance leaving us in a desperate dash for cash. Applying for these loans is often simple as most lenders have millions that they can share with users. Most of these quick cash loans come with their own set of rules and qualifications. There are many factors that go into your decision to apply, so there should be equally as many combatants for how you are going to repay these extra finances. Below are three factors you should consider before applying for a loan.
The interest rates on a quick cash loan can be detrimental towards your steady income. Most of these loans come with rates that extend far beyond your initial payout. For example, a $300 loan that is handed out from a lender can be financed to repay within 6 months. The lender will determine when you are paid and will take a chunk of cash each pay period.
These rates can reach as high as 300%, making that $300 bill turn into $900 in repayments over the course of 6 months. If you are following the math, $75 is due on a bi-weekly pay structure and $150 is due on a monthly payment structure. In the course of two months, you will have paid back your initial funds but will still be responsible to take care of the additional interest that your loan carries. The interest rate is the main factor of consideration because it will often cost you twice or three times as much to pay back what you are gifted. Tip: use a credit or interest calculator like Kreditrechner.
How badly do you need the money? Are there alternatives that you can work to gain extra funds? Re-working your budget or finding instances of extra cash earnings is your best ticket before applying for a loan. You’ve seen how interest rates can gouge your income, so finding a better solution is one thing to consider before applying for a loan. For example, a pizza delivery driver takes home tips on a daily basis. If you can work this position for a few weeks you can generate a couple of hundred dollars of income. Finding a job solution that will pay you in quick fashion is one of the best ways to avoid having to apply for a loan. Considering the need and assessing your finances is a great way to determine the steps needed to erase these additional expenses.
One area that a loan can hurt you is with your credit score. Most lenders will run deep credit checks, often taking a hit to your credit score. If you are someone that has had a history of good credit, these loans can erase your progress. If you can’t repay your loan within the selected time frame, your score will fall even further. Ensure you understand all of the credit risks when signing up for a payday loan.
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