One of the most important things to do before applying for a loan is to work out whether you can afford the repayments.
Well here at Ocean, our loan calculator can give you an estimate of what your repayments could look like. You can then use this to work out whether a loan is the right option for you right now.
The repayment worked out by a loan calculator is not a guarantee of what you’ll actually pay, but it can certainly help you work out what you can afford. However, there are a few other things to consider when thinking about whether you can afford your loan repayments each month. Let’s take a look.
Don’t lose sight of your budget
A good place to start is by asking yourself whether your budget can stretch to include new loan repayments? Remember, you should only borrow what you can afford to pay back.
With this in mind, it’s a good idea to review all your outgoings, including your existing credit agreements, mortgage/rent payments, utility bills, and all other essentials. This can give you an indication of how much cash you have left each month to put towards clearing the loan balance.
Through budgeting, you can get to grips with exactly what is coming in and out of your account. Being mindful of your spending habits can help you when deciding whether you can afford to borrow money.
This is where a loan calculator can help. Here at Ocean, you simply enter how much you wish to borrow, the interest rate and the term you’d like to repay it over. By doing this, you’ll get an indication of what your repayments on the loan could look like.
If it turns out that you can’t afford to keep up with your repayments and you start to miss them, your credit history will be affected. Plus, depending on the type of loan, your home could be at risk of repossession (but more of that later).
If you think you may struggle with the repayments, our advice would be to hold off applying and consider other options.
But, if you do decide that a loan is something you can afford, you need to understand your options.
Homeowner or personal loan – what’s the difference?
A good place to start is by asking yourself why you want a loan. Perhaps you want to consolidate your other debts into one manageable monthly payment. This may mean your monthly outgoings are reduced as you’ll be paying the debt consolidation loan back over a longer period of time.
Maybe you have a big investment planned, such as a home renovation project. Or, perhaps you need funds for an emergency, like house or car repairs. Whatever the reason, a loan could provide a solution. But which loan is most suitable for you?
"Each lender has their own criteria."
A homeowner loan, also referred to as a secured loan, is secured against your property. This means that not keeping up with your payments could put your home at risk of repossession. So, it’s vital you know that you can afford the repayments before applying.
A personal loan is an unsecured loan, so no security is needed. This may mean that you will not be able to borrow as much as you can with a homeowner loan.
Before you apply
So you have a good idea of what you can afford and the type of loan you wish to apply for - what’s next?
Well, it’s important not to run the risk of your application being rejected. As well as you calculating whether you can afford the loan repayments, lenders will look at this too. And if they think that you’re likely to struggle, they could turn you down.
Lenders will also see whether you’ve been a responsible borrower in the past. Check out our top tips on how to keep your credit history in shape.
If you think borrowing will overstretch your finances, it’s a good idea to wait until you’re in a better financial situation. Remember, if you did apply and your application was rejected, a mark would be left on your credit history that can affect your ability to borrow again in the future.
Disclaimer: All information and links are correct at the time of publishing.