When is the right time to get a loan?
Money doesn’t grow on trees, that much we know despite all the times we wished otherwise. So, it’s no surprise when, most often than not, we find ourselves short on cash with a list of purchases we haven’t gotten the chance to buy yet. Because our brain is wired to seek ways to get out of such irksome little situations, the majority of us resort to borrowing money. And since loans are one of the most appealing financial tools when it comes to this particular subject matter, many of us hit our nearest bank to take one out.
But, it’s important to know that loans require solid financial grounding and planning if you want to pay back the money without any hassle.
So, don’t put your shoes on and jog to the bank just yet! Let us give you some insight about loans before we place the ball in your court.
What is a loan?
Allow us to refresh your memory a bit, a loan is a financial transaction that involves borrowing money from a financial institution, such as a bank, over an agreed upon period of time. Throughout this time, you will be expected to pay back the money in installments while also factoring in an additional sum in the form of interest, which you can consider as a fee in exchange for the bank’s services.
The purpose of loans
There are many reasons to take out a loan, the most important one being that you’re short on money. Whether you’re looking to finance personal purchases, or you want to pay your college fees, or maybe even start a business, these are all reasons that may prompt you to take out a loan.
When is the right time to take one out?
Ah, see! There’s the golden question. Some might argue that the best time to seek out a loan is when you need it. But we believe that the best approach to take is seeking financial help when you have a plan for paying back the money you are about to borrow. How? Well, there are primarily two things you need to think about before you decide that you want to take out a loan:
Don’t think of the money as the bank’s
While yes, you are borrowing money from the bank, you will be contractually obliged to pay it back in full along with interest payments. So, in other words, that sum of money you’re taking out shouldn’t be considered as “the bank’s money,” because at the end of the day, it will come out of your pockets. So, you need to be smart about this decision. Don’t take it lightly! Think it through first and see if you are capable of paying back such an amount of money or else it’ll be more trouble than it’s worth.
Have a solid financial grounding
Say you want to take out a 10,000 JOD personal loan with a 4% interest and a 4 year loan tenure. This means that you will have one year, 60 months, to pay back the money borrowed along with the interest.
When you pay back the money, you typically do that via monthly installments. So, in other words, each month you will have to pay 184 JOD monthly.
184 JOD may not seem much, but remember that this is an additional expense on top of all your other expenses. So, if you make 1,000 JOD a month and typically spend 80% of your paycheck, then you won’t be able to finance your loan. Unless you have an emergency fund or a savings account that can cover the remaining installments.
Taking out a loan is a decision that must be carefully mulled over. Think of what we presented you with, and if you’re still hesitant about whether now is the right time to take out a loan or not, remember that our blog has loads of content that can help make your decision r! Whether it’s the basics of borrowing, the ins and outs of taking out a loan, or the content of a loan agreement, all our resources are available to help make your decision easier!
