Have you been thinking about applying for a loan?

I was talking with a younger friend the other day and he was telling me about how he plans on applying for a loan. He wants to go on a trip of Europe and feels that he just can’t save up enough money for it. So he’s going to apply for a loan. I thought that this was a bit odd because I’ve always felt that you should earn your freedom. Not borrow for your freedom. This conversation got me thinking about borrowing money and applying for loans.

What should you think about before applying for a loan?

The interest rate.

How’s the interest rate on this loan? A steep interest rate can hold you back for a long time because you’ll be making payments on the interest and not the principal.

For example, a credit card typically charges around 18% interest. Imagine having to deal with this? You really need to try to negotiate the interest rate on the loan (especially a house) because it’s a matter of serious money.

Your ability to pay this money back.

Any commitment in life should be given serious consideration. What’s your ability to pay this money back? Some points to consider are:

  • Is this sum too large? Some sums make no sense. To borrow $10,000 for a trip is rough because it’s going to take you a long time to pay this back. A few hundred bucks on the other hand isn’t so bad.
  • What’s your income like? Are you making enough money to pay this loan back? Without an income it’s going to be challenging to get out of debt.

Are you ready to apply for a loan?

What are common reasons to apply for a loan?

While I’m sure there are unique reasons to apply for a loan, today I’m going to share the most common ones:

  1. Car. An automobile purchase is usually financed and paid off over a few years. While not too overwhelming, these monthly payments need to be considered because they can dent your monthly spending.
  2. Home purchase. Almost every single person reading this will apply for a home mortgage. Rarely do you meet anyone these days that purchased a house with 100% of the money down. The most realistic scenario involves 20% down and then 80% financed.
  3. Education. Most college students are now borrowing insane amounts of money to finance their educations. Some students even borrow money for housing and other basic expenses. While there’s nothing wrong with this, student loans do take a long time to pay off.
  4. Personal reasons. There are also personal reasons for loans. This could be to get out of an emergency situation. It could also involved an investment. I’ve heard of friends borrowing money to make an investment. That’s a risky scenario that deserves some thought in advance.

You can check out clydesdale bank personal loans or your local bank for more options. It makes sense to know what you’re getting into before you apply to borrow any money. You do have to pay this money back.

Have you applied for a loan recently? Please share your experiences with us.