You might be considering an online loan for various reasons. For instance, you might really need a new car but simply don’t have the savings to buy one up front yourself. Alternatively, you might have been given a bill for repair of your existing car which means some cash coming to you by way of a loan is the only way you can get it fixed. You could also want to book a holiday, pay tuition fees, install a new boiler in your home or pay off a high interest credit card. Whatever your reason for needing an online loan, there is no doubt that you will have to do some careful planning before you apply.
Not only will you need to ensure the online loan company you pick is reputable and registered, but you will want to compare interest rates, work out your repayment schedule, figure out exactly how much you will need and whether you can afford it. In fact, Wonga presents us with a simple three-question rule when applying for an online loan which comes in handy: 1. Do you really need it? 2. Can you afford it? And 3. What will it cost you overall? By answering these three questions, you can have a frank discussion with yourself about the terms of the loan.
One particular area you will need to look at is your existing finances, so you can figure out where the repayment money will come from. In some cases, you may need to jiggle things around to accommodate the repayments. For instance, you may not put as much money into your savings account to accommodate the loan.
If things are really tight, and you really do need that loan, you might want to sacrifice something else out of your monthly expenditure, such as your TV package, or perhaps you could downgrade your phone contract for the interim. This could release much needed money for the loan repayments.
It is best to start a spreadsheet and make a list of all your incomings and outgoings. Compare the two – do you regularly have more going out then you do going in? How can you change this? Look into areas like your grocery bills, too. Do you consistently spend the same amount each week, or do you do a few top-up shops which really eat into your money? One wise thing to do is figure out your debt to income ratio.
Huffington Post sets out this great way of doing this, “Tally up your monthly personal debts—like student loans, mortgages, car loans, credit card payments, existing business loan payments—and divide that by your monthly gross income. This calculation, multiplied by 100, gives you a percentage that shows how much your income exceeds (or comes in below) your debts.”
They say that while a debt-to-income ratio doesn’t give an exact a way to see if you can afford a loan, it does give you a sense of whether you are in a good place to take on more debt. So, if your debt-to-income ratio is above 36%, it might not be a good idea to take on any more loans.
By conducting this kind of ‘financial MOT’ you can see where your money is going and where you can find extra to meet your loan repayments.
