6 Factors to Consider Before Applying for a Loan in January
January has proven to be a tricky month for most Kenyans based on how individuals use most of their cash on December festivities, often forgetting the pending bills glaring in their eyes.
Therefore, loans, despite being typically considered a last resort in times of financial crisis, may come in handy.
Here are six factors to consider before applying for a bank loan this January.
Purpose of the Loan
Financial experts advise that it is crucial to have a clearly defined purpose for seeking a loan. This January, parents are primarily focused on covering school fees for their children, and this can be considered a key reason for applying for credit.
Furthermore, another significant reason for applying for a loan is to invest in your business. Initiating a business that you are confident will lead to a positive turnaround can be a prudent move.
Additionally, taking out a loan for emergency purposes is another valid reason.
Loan Interest
Opting for high-interest rates carries the risk of struggling to meet loan obligations, potentially leading to the repossession of assets or securities. Additionally, it’s vital to avoid taking out loans in excessively large amounts that could hinder your ability to repay them effectively, thus stretching your finances.
Loan Amount
Before taking a loan, it is essential to determine the specific amount you need and one that you are comfortable to repay without stretching your needs.
Repayment Period
The repayment period of a loan is an important factor before applying for one. The time frame should be well defined and spaced that ensure you get the required amount to start repaying the debt.
Short-term loans can be stressful to repay as there are penalties that will be implemented upon defaults.
Credit score
Banks use the credit score rating to determine the amount to loan you.
How can you maintain a good credit score? Repay the loans on time, establish a positive credit history, avoid reaching your credit limit, and report any credit irregularities to recalculate your loan.
Loan Security
Banks and financial institutions can ask you to provide collateral from title deeds, properties, and car log books as loan security.
While offering collateral, it’s wise to opt for a loan that is easily manageable to ensure you can comfortably meet the repayment terms and avoid the risk of the bank claiming your security.
6 Factors to Consider Before Applying for a Loan in January