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Money In, Money Out: Are You Ready for a Personal Loan?

11 February 2014 No Comment

Disbursement loanMany of us experience a point in our lives where we need to borrow money to finance a special purchase or maybe to deal with an unexpected emergency. The financial landscape may have changed considerably over the last few years and lending criteria has been tightened in general but the same principles apply in that you still need to be able to work out if you can afford the payments.

Your current financial position

You may think that you need to borrow some money but before you make any applications for a loan you should work out if your finances are robust enough to be able to afford the extra monthly payments on top of your existing outgoings.


The number one priority when evaluating your current financial position is to draw up a budget which details all of your current expenditure so you can get a clear picture of what money is coming in each month and how much is currently going out.

The budget needs to include every item of expenditure and it would helpful to write down a list or create a spreadsheet so you can check whether you have missed anything off. List all the usual household bills such as mortgage or rent payments, gas and electricity payments, water rates, TV licence, insurances and also make sure you remember to include existing loan repayments and credit cards as well.

Your budget also needs to include any childcare costs if you have a family and any spending on eating out, subscriptions like Sky and hobbies that you regularly spend money on.

One of the best ways of making sure that you don’t miss anything off your monthly expenditure list is to check through your bank statements for the last three months and check off all the payments against your list.

Review your financial position

Once you have a comprehensive list of your income and outgoings you are in a position to review your financial position and see whether there are any savings you can make and also whether you have a sufficient amount of spare money left over each month after everything is paid for to afford the additional monthly repayments required if you take out a new loan.

Borrowing options

Having decided that you can afford to borrow some more money based on your current financial position you then need to look at your borrowing options depending on what you want the extra money for and how long you want to borrow it for.

A lot of people tend to use their credit card for short-term emergencies and this is fine if you intend to pay the amount back when the next statement comes in but not such a good idea if you are not able to pay it off immediately as the cost of borrowing in your credit card is often much higher than other options.

A personal loan may be the most cost-effective option and when you look at the rates currently available from lenders  who have just announced a historically low lending rate of 4.7% APR, this would work out a lot cheaper than using your credit card.

It may even work out cheaper to borrow money to clear your existing debts and have one monthly payment at a lower interest rate but before you make any application, make sure you work out your budget as this is what many lenders will ask you about anyway.

Jamie Benson understands that personal finance management can be complicated and stressful. She takes her years as a financial counselor and helps people make smarter money decisions to achieve their goals.

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