1. Determine exactly how much you need
Before you take a loan, consider carefully the amount of money you need. If you take more than you really need, you will pay unnecessary costs and interest, and if you take too little, you may end up taking another loan in very short period of time
, which will additionally bourden you monthly buget. Therefore, you should make an optimistic and a pessimistic scenario in order to determine the optimal amount to take.
2. Know why do you need it for
Though this may sound like a silly advice, it is often the case that people take personal loans, because the procedure is faster and easier than with other types of loans, but end up using the money for purposes that could grant them loans with much more favorable interest rates. Personal loans usually have the highest interest rates of them all. For this reason, do some research and find out if there are some loans for specific purposes. Often, banks have promotions for certain types of loans.
3. Do not fall for the'' good'' seller
If something seems too good to be true, it probably is, and what sounds like a tempting offer turns out to be the one with a lot higher costs. Sometimes you will be offered lower interest rates, but will be charged additional fees, which would drain more money from your account than nominal interest rates. Ask your banker to explain in everyday language what exacly will be your monthly rate, and what are the total fees they will be charging you for your loan.
4. Get the timing right (planning)
If you are planning some major investments, be aware not to take personal loans before the major loan. It has to do with your TDSR (Total Debt Servicing Ratio), which all financial institutions are obliged by law to take into account when approving someone a loan. This means that monthly repayments of your overall debt cannot exceed 50%, or rarely 60% of your monthly income. So, if you already have one or two personal loans, you might have very limited options in terms of the amount of money you can get. Depending on a bank, you will have to have at least 30% DSR in order to get a loan for a car, and up to 40% DSR for a house.