Should I take out a Loan if my Bank Offers one?

Often a bank that you are a customer of will offer you a loan. They may send out a leaflet with the details, a direct letter, email or even telephone. It can be tempted to think that you should take this opportunity of having some extra money and take out the loan. However, this could be a decision that you regret.

It is easy to think of a loan as money for you to spend on whatever you wish. That this is a gift from your lender that you can enjoy and spend on yourself and have a treat and so you should take it as you may not get offered such an opportunity again. You may feel that if you turn it down that they will not offer you a loan again, but actually this could be a good thing and is actually unlikely anyway as they want to make money from you if they can do so.

Taking a loan like this can be a big mistake though. Think about why the bank is offering you this loan. It is because they will make a profit from it as they will charge you interest and possibly fees as well so you will pay back a lot more than you borrowed. The amount that you pay in fees will depend on the interest rate, the charges and how long you take to repay it. It is well worth calculating how much it will cost you and then you may decide that perhaps it is not such a good idea after all.

It is also wise to consider the payments. You will have to repay the debt, this may be in a lump sum, in regular instalments or when you want to. However your loan is set up, you will always have to repay it. This means that you need to think about how you are going to be able to do this. If you need to make regular repayments then you will need to have the money available to do this. If you are not sure if you will have this extra money then take the time to calculate the money you have coming in each month and the money you have going out and see whether there is any left that could be used to make the repayment. If there is not any left then it would be very unwise to go ahead with the loan.

It is also worth considering what might happen if your income suddenly reduces or your expenses rise or both. How would you cope with making the repayments in this situation. You may assume that your bank will be kind to you as they offered the loan, but this is extremely unlikely. Take a look at the terms and conditions of the loan and it will tell you how much the fees, charges and interest is if you miss a payment or make a late payment. Consider how expensive this will be and how you would feel in this situation.

Do not worry that the bank may not offer you a loan again. It is up to you to ask for a loan if you need one, not the other way around. You need to consider your circumstances and whether it is the right time for you to get a loan or not. Think about whether you can justify the expense, whether you can make the repayments and whether you will cope should interest rates go up, your income goes down or disappears and if your expenses go up.

A loan should really only be taken out if you really need the money. Usually this would be in an emergency when you have no other way of affording something or need to buy an item in an emergency. Occasionally it might be to better yourself such as a mortgage or a student loan. However, they should always be taken out after a lot of thought and consideration and to buy something specific. Just borrowing money because you are offered it can be needlessly expensive and lead to stress and therefore should be avoided completely. If you can manage without a loan, then do so!

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