Question #1: Will borrowing money help me achieve my goals?
Before you apply for a personal loan, you should ask yourself whether you need it at all. Perhaps you’re already spending money on a bigger ticket item that you’ve saved for. Maybe you’re paying off credit card debt, or you have the cash in hand to pay for the thing you need.
If you’re focused on the long term, you know that debt has a steep price tag. So before you take out the loan, take a hard look at whether it’s worth it in the long-term.
Question #2: How much do I need to borrow?
This may seem like an easy answer: You want money, so you need that much money. But borrowing shouldn’t be haphazard.
Before you take on the monthly payments of a personal loan, it’s vital that you have a grasp on why you want the cash, how you’ll spend it, and how much money you need.
Question #3: What will my monthly payment be, and can I afford them?
One of the most common reasons why people get into financial trouble is that when they take out a loan, they don’t have the means to pay it back. Paying off your loan will cost you much higher than expected if you fail to include your monthly expenses when determining loan repayment.
The ideal step to avoid this is to create a budget, including all your recurring expenses (e.g. rent, car payments, utilities, groceries, etc.) as well as incidentals (e.g. birthday gifts, dinner with friends, etc.).