Should I get a Loan if interest Rates are Rising?

When interest rates are rising it can seem like it is not a good time to get a loan. This means that people might delay borrowing money and wait for rates to fall. It is worth considering a few things when getting a loan and interest rates are just one of them.

Do I really need the loan?

It is a good idea to always think hard about whether you really need the loan. Think about what you are borrowing the money for and whether it is really worthwhile. Consider the impact of the loan, not just the positive impact of buying the items, but also the negative impact of having to repay a loan. This can be stressful for some people, expensive and is not always easy. Decide based on this, whether you think that getting a loan will be good value for money. Remember when you are calculating this, that you need to account for the fact that when you repay the loan, there will be interest payments and possibly others costs to be repaid as well as the sum that you borrowed and you need to decide whether you feel that paying this extra money is worthwhile. Remember that if you had saved up for the item, you would not have to pay those extra costs; in fact, you may have got interest on your savings.

Can I Afford the Loan?

It is really important to make sure that you can afford the loan that you are taking out. It is vital that you find out how much the monthly repayments will be and look at your bank statements to see whether that is an amount that you will be able to afford. Payday lenders such as display this information via a representative example. So you can see specifically how much your loan is likely to cost you. You may find it hard to work out, but if you call customer services they will be able to tell you how much you will pay. If you have a variable rate of interest though, the amount you pay could go up when the base rate changes. It could be worth asking how much it will go up if interest rates rise so that you can be prepared for this. Then you will need to take your bank statements and take a look at how much money you have coming in each month and how much you spend each month. You will then be able to see whether you would normally have enough to be able to afford the repayments. If you do not, then you need to think about what you might do in order to be able to afford them. Think about whether there are things that you could give up in order to afford it or whether you will just not be able to manage.

Will I Afford it if Interest Rates Rise?

It is always worth planning for rate increases as well. If you have a fixed rate loan then any change in rate will not make any difference. However, if you have a variable rate, then an increase in the base rate is likely to mean that there will be an increase in the amount that you end up paying. It is wise to try to work out whether you will be able still afford the repayments. If you have already had to consider changing the way that you spend money in order to afford the repayments at the current rate then you may struggle even more if the rates go up. Make sure that you have a plan in place so that you know exactly what you will do if this situation happens. If you do not think that you will be able to reduce your spending then you will have to think about ways to make more money in order to afford the repayments. This may be easier for some people than others and you will need to be confident that you will be able to do this before taking on the loan.

So, it is not necessarily a bad thing to take on a loan when the rates are rising but you need to make sure that you are going to be able to do this. You will need to be aware of how much it will cost you and whether you will be able to afford those repayments. Then consider how much more expensive they might be if the rates go up and whether you will be able to afford them now. Although this can be a bit tricky to do, it is well worth spending the time to do the research so that you can go into the loan knowing that you will be able to afford it regardless of rate changes. That is, of course, as long as you are able to justify taking out the loan in the first place and there are no other possible options.