3 Decisions to Consider Before Taking Out a Loan

“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.”

                                                                                                         ~ Will Rogers


The decision to take out a loan, for whatever reason, should never be taken lightly.

Besides the many considerations and qualification criteria you need to satisfy, taking out a loan often causes a long-term change in your financial habits. The additional cost of a loan every month can and usually does have a knock-on effect on how you spend in the future.

Having debt means you have less to save. And with the recent hike in the repo rate, now is the time to save and get a return from your savings every month. A savings account could protect you from  getting into debt because of unexpected emergencies.  On the flip side, if you have debt, it’s going to cost you more every month instead.   We borrow money for many reasons. Whether it is to finance a small business, a quick online loan for an emergency, a cash loan from a friend or even something as large as a home loan or vehicle finance, we have all at some point been exposed to the world of borrowing.

Before you dive into signing that financial agreement, let us investigate 3 things to consider beforehand:

#1: Is it Necessity or Luxury?

When it’s an item that would make life easier such as a better car, bigger home, or simply a surplus of cash with a personal loan or a credit card to pay for living expenses and expected costs , it’s tempting to take out a loan. If the purchase is entirely luxury, you should not be using credit  at all if you can help it.

Money which you have not acquired through saving, but borrowed instead for items seen as a  luxury only, is unquestionably unnecessary.

Taking out credit  should be considered repeatedly. Is it really necessary to go out for a meal with friends when you can only afford to pay using credit? Asking yourself repeatedly whether this purchase is a luxury will help you program your mind towards being more aware of your spending on credit.

. You need to budget for luxuries with your income. You can put a certain amount away every month to cover treats such as an Uber Eats delivery or a night out with your friends.

Financial freedom comes with sacrifices. And those sacrifices are as simple as remaining within your budget. Wait until you have saved money, before choosing to splurge on a luxury. The peculiarity is that as soon as you want to spend money which you have saved on an unnecessary luxury, you will find that it is much more difficult to do so.

#2: How Much will I be Paying Back?

Different creditors offer different interest rates and terms of agreement.

The interest rates which you will be charged are also heavily dependent on your credit score.

You can see on your credit report here.

Before agreeing to any loan make sure to shop around for the best interest rate as well as the term of repayment that suits you.

As you make payments every month towards your personal loan, you will notice in your statements just how much you’re paying towards your actual balance and towards interest. It may take you years before you actually make a dent in that personal loan.

Because of the high amount of interest you’re paying every month, compared to actual payments off your balance, your actual balance will remain high over several months and possibly  years depending on your terms.

To get your debt down quicker, you need to put more into your  loan every month than the minimum repayment. Another cost implication to consider before taking out a personal loan…

#3: If there is a Crisis, Will I Still Be Able to Afford the Repayments?

One important consideration many people do not plan for is insurance. In the case of an emergency such as loss of employment, a family crisis or any other unforeseen financial stumbling block which may prohibit you from keeping your side of the repayment agreement.

Before taking out a loan, ask yourself what will happen if there is a crisis. There are of course options such as debt review which will help you in a time of financial crisis to repay your debt. Many creditors offer loss of employment insurance as an added extra or disability insurance to help repayment in case of such emergencies.


Whatever the reason for applying for a loan, take the decision very seriously and really consider tomorrow. Once the hype of taking a loan for unnecessary reasons is gone, there is only financial struggle left behind. Never take out a loan on someone else’s behalf. If you have already taken out a loan and are finding it difficult to meet your repayments, immediate financial relief is available now.

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