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How to Budget for a New Loan
There are times in life when a loan is necessary. Buying a new car or a house does this thing that makes getting a loan essential.
The first step in knowing if a loan is right for you is to make sure that you have a solid grasp of where your finances are before you apply.
Creating a Budget
Prior to taking on any new loan, it is important to have a budget in place, or, if you do not already have one, to make a new one. A monthly budget can help you see if there is an area in which you are overspending your money to help you save for a down payment. A monthly budget can also help after you have received a loan, helping you to stay on top of your auto or mortgage payments and prepare for extra expenses.
The first step to setting a budget is to determine what your income and expenses are. The amount of income you put into your budget needs to be based on what you take home after taxes and not your gross pay. The next step is to determine how much you can afford and want to spend on whatever you need the loan for. Even if you can afford an expensive car, you do not necessarily need one. Budgeting for a new loan should not be about trying to figure out how to have enough money for the most extravagant option, but rather, that you know what you can afford to pay while still considering other priorities.
A budget can help you figure out what you want before you begin to look for a house or car. This way, you won’t be easily talked into buying something you cannot afford. Taking out a loan that you cannot afford can cause missed payments, repossession, and/or significant damage to your credit. If you already own your home and are looking to take out a loan to do home renovations, make sure that you are putting that money toward renovations that will increase the value of your home.
The Down Payment
Unless you do not mind being saddled with a high amount of debt, the larger the down payment you are able to make, the better your loan experience will be for two reasons. The first reason is that if you are able to make a large down payment, you will most likely get a better deal on the interest rate. The second reason is that the more you are able to pay upfront, the fewer total payments you will have to make over the life of the loan. This can be advantageous if you need to refinance your loan.
Whatever your choice or need, make sure that you read all the fine print and research your loan ahead of time. If you’re currently behind on your debt payments, CreditGUARD can help. Our non-profit debt management and credit counseling programs have helped countless people reclaim their hope and their finances. Call us today at 1-800-500-6489.