Things you need to understand before applying for a loan

Ask for loan It is an important financial decision, so it should not be taken lightly. But, Before adopting such a procedure, it is necessary to assess whether this is really the best option.

When we have emergency savings, and these are not always available, debts grow and accumulate. Therefore, there are more and more people looking for a personal loan to be able to pay for those emergencies.

Many times it is large medical bills, medications and credit card debt. The financial area is something that, if not taken care of, can affect the other areas, because it is necessary to make an intelligent decision. So, consider the questions that we will ask you next.

Why do you need the money?

Knowing why you need to borrow in the first place is the most critical indicator you need to pay attention to when thinking about borrowing. Lending money is an important financial decision. And since it can help you, it can also harm you, everything will depend on how you manage the money.

One of the most important loans of your life is to obtain the money for the purchase of your house, where you mortgage it. If you manage to pay a good initial value and it is a home that is within your means, it could mean that asking for a loan is a good option.

But what about personal loans?

According to what was published by Finder, on 47 % the interviewees obtained a personal loan to pay for tickets and/or emergency payments. Borrow money to pay for things like medical bills, a dented car, or a flooded basement.

It is not ideal, so the recommendation is always made to have savings for emergencies. With this, it is estimated that 69% of Americans do not have savings for emergencies that go beyond $ 1,000.

How much can you afford for a loan? (and pay)

Now that you have determined why you need the money and that asking for a loan is in your best financial interest, you'll need to think about how much you can (and do) realistically afford. The word afford is a tricky one.

Just because you can make the monthly payment doesn't mean you can actually afford the loan. In fact, a recent Harvard study showed that nearly 40 million Americans live in a home they can't afford.

The cars are similar. A study by Bankrate showed that most families can no longer afford the average new car. While a AAA study showed that 64 million drivers could not get just $ 500 or $ 600 for a car repair.

The first step here is to ignore the APR on the loan for a moment. That's usually the first thing the loan originator will try to sell you. And rightly so, it's a standard way to compare loans quickly and easily.

Last considerations  

But what's even more critical than the APR is the total cost you'll pay for the loan, sometimes called the TAR (Total Reimbursable Amount). This is the amount you borrow plus the interest you will end up paying over the life of the loan.

A simple way to calculate this is by using a basic loan amortization calculator, like this one from Calculate Stuff.

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