5 Questions to ask yourself before you take a Loan
With the invasion of quick Mpesa Loans in Kenya and banks buying your phone number for the purpose of forcing a loan down your throat, you should be careful before you give in. Taking time to answer these 5 questions before you take your loan, may just be what saves you from the psychologically stress that comes from tasting the money.
- Do you really need what you want to buy?
A lot of times the things that you seem like you urgently need are really not that urgent. You can always plan and have patience until you have saved up enough money to buy in cash, rather than financing or taking out a loan.
- Can you find a Less Expensive Deal Instead?
We always love to buy the latest model. But most of the times it’s smarter to go for a used or lower model instead. Cars loose their value so quick. Buying a zero millage Prado from Toyota Kenya when you are tight on cash may be the dumbest thing anyone can do. Getting a more basic model or used car will save you some good money to save or invest.
Especially when you are about to make a big purchase, always take your time to ensure you have shopped everywhere for the best deal and for what you can actually afford.
- Can I Afford to Make the Loan Repayments?
One of the most important question to ask yourself before you touch a loan is: Can you afford to make the loan repayment. You have to totally be honest with yourself and ensure before you take the loan you can afford to make the repayment.
Ensure by taking to loan you don’t end up starving and waking to work! If you take a loan and can’t go shopping, outings for dinner or spend on the weekends with friends, then you really can’t afford the loan.
Your loan repayment should never be higher than 25% of your income, the lower the better. Make sure you calculate your debt-to-income ratio to get it under 25%.
- How Fast Can I Pay the Loan off?
If you spend more time paying interests to others, you may find it difficult to build true wealth. Always consider how long it will take you to pay off your loan before you sign the contract. Paying your loan earlier than the stated time on your contract, will enable you to reach your financial goal quicker.
It is important to carefully consider all options before you take out the loan. If you are convinced to take out the loan, don’t just plan to make the stated monthly payments but try to pay extra each month.
- What Happens If I Can’t Pay Off my Loan?
You take a loan with the assumption of ongoing flow of income from your job.
- What if you lost your job after taking your loan?
- What are the long-term effects?
- Or if a financial crisis causes a cut in your income?
This may extra pressure to find a new job quick, since any late payments or missed payments will affect your credit score.
In some industries like the banking sector, you may have a difficult time finding a job if you have a poor credit history. It is very important to factor in how you will pay your loan if you were to lose your job. Take extra caution if you have one source of income before you consider taking any loan.
We hope this has been helpful in guiding you through the tough decision of taking your Mpesa or Bank loan.