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What are your reasons for taking out a loan?

 

Your borrowing capacity is your ability to pay back a loan within a certain period of time and according to agreed terms. If a bank offers you a loan, look very carefully at the terms.

If you have any doubts about your ability to repay it, do not take it. It is that simple. First, take a close look at your personal budget, the duration of the loan being offered and the actual cost of repaying it. Look very closely at the contract and any other documents associated with the offer, and in particular, look for any “hidden” clauses about penalties. Some lenders make it more difficult than others to calculate the actual cost of repayment. 

Another very important thing to consider when thinking about a loan is: how secure is your job. Since you will pay loan instalments from your monthly salary, it is important to have a stable, long-term job. If you lose your job you will be left with a debt, in addition to the burden of taking care of yourself and your family.

A client’s borrowing capacity should be just as important for a bank as it is for the borrower. A responsible bank will ask you why you want to take out a loan, and will assess whether it is justified from an economic point of view. The bank should always examine the borrower’s motives and point out all of the possible consequences of signing the loan agreement

Ideally, the goods you buy with a loan should “pay for themselves”. For example, by purchasing a boiler with lower electricity consumption, you and your family can save on your electricity bills, and these savings will help you to repay the loan.

Because consumer loans are mainly used to buy short-lived goods, they can never pay for themselves in this sense. This is one of reasons why you should always think twice before submitting an application for a consumer loan. Always start with the question: Do I really need the thing I plan to buy with a loan?