When planning to take out a loan, it is important to consider a number of factors so that the money will benefit you, but it will not become a real financial burden not only for you but for your family members. Therefore, in today’s blog post by Darcy, we share tips on what criteria to consider when choosing a loan term.
Estimate how much you can spend on installments per month
The law allows you to borrow an amount that does not exceed 40 percent of your monthly official income. However, we recommend that you do not only assess your financial capabilities, but also your needs. Because if you spend 40 percent of your income monthly to cover your financial obligations, you will really severely limit your financial ability.
Remember that you will not only want to live from salary to salary, but you will probably want to pamper yourself as well, so we recommend that you make about 20 percent of your financial commitment. The loan taken out in this way will not become financially unbearable.
Estimate the amount of loan you take
Choosing the longest possible loan term is sometimes tempted by a small monthly payment. After all, you want to make small premiums every month that seem financially unaffordable. However, keep in mind that the longer the loan term is chosen, the higher the interest rate is paid, so we recommend a shorter term when borrowing a small amount.
Of course, this offer is not valid for borrowing larger amounts. In any case, choosing a term is not just about keeping your down payment as low as possible, but rather calculating how much interest you will pay.
Evaluate that needs are changing
In the last tip, we advised you not to choose a repayment term that is too long, but we recommend that you do not choose it too short, especially when borrowing a larger amount. Even if you currently feel like making a large monthly payment – keep in mind that your needs may change and you may not be able to pay a certain amount, but you will be in financial trouble.
Instead, ask if the company of your choice has a longer-term, everything can be repaid ahead of time and if interest is recalculated. It is better to pre-insure yourself.
Find out if you can extend the loan term
If you choose a shorter loan repayment term, find out what the terms would be if you encounter a situation where you cannot cover your liabilities. Most consumer credit companies still have the option of extending the term of the loan for an additional fee. This way you can avoid late interest calculation and damage to your credit history.
By properly assessing your financial capabilities and choosing the optimal loan repayment term, you will enjoy a timely and convenient financial gain that will not become a burden later on.