Having a baby is one of the biggest life-changing events you can go through.
Although it can be a very exciting time, you might be thinking about your financial situation now more than ever.
Well if you have plans to borrow money – maybe you have some home improvement ideas in mind – it’s vital to be sure that you have enough room in you budget each month to cover your repayments. Remember, you’ll also have an extra little mouth to feed.
In this blog, we take a look at what you should expect when applying for a loan.
I’m expecting – will lenders take this into account?
Before lenders agree to lend to you, they want to be reassured that you can afford the repayments. Although lenders cannot ask you whether you’re expecting a child, they can ask whether your income and expenditure is likely to change. If you or your partner are about to go on maternity leave, the answer to that question is likely to be ‘yes’.
Of course, lenders will take a number of other factors into account – and will also pay close attention to your credit history. This shows them how much you’ve borrowed in the past and how you’ve managed your repayments.
They do all this to work out whether you’re a responsible borrower and whether you’ll be able to make your repayments to them. If you’re about to have a drop in income as result of a new baby, this could well affect what you can afford. That’s why it’s important to be upfront about this, so that you’re not at risk of borrowing more than you can afford.
Is it the right time?
It’s vital that you work out whether your budget can expand to include your loan repayments, and whether a change in your circumstances will affect this.
A drop in your income – which is likely to happen when on maternity leave – will probably leave you with less money each month.
To make sure you manage financially, it’s essential to know your budget. Once you know how much spare cash you have, you can work out the amount that you can comfortably afford to put towards your loan repayments.
A loan calculator can help with this by giving you an idea of how much you’ll likely need to set aside each month for your repayments.
Things to consider
If you have decided that a loan is a suitable option for your circumstances, the next step is to weigh up the types of loans available.
For example, with a secured loan, the money you borrow is attached to your property. This means your home will be a risk of repossession if you stop paying. So, it’s vital that you’ll be able to afford the repayments.
A personal loan is not attached to your property. Because of this, lenders don’t have the same level of security to protect them if you miss your repayments. This means the interest rate is typically higher on this type of loan, compared with a secured loan.
After considering everything carefully, you might still be keen to take out a loan. If so, you should weigh up your options. It’s a good idea to use a soft search tool to look for a suitable loan without leaving a footprint that lenders can see on your credit history. You can find out more about this here.
If you have any doubts about whether a change in circumstances will impact on your finances, it might be worth holding off applying for a loan for the time being. Can you hold out until your maternity leave comes to an end and you go back to work?
If you can, lenders might be more willing to lend to you if they have reassurance that you’re earning a regular income.
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