If you do not have a very large income, but you need a loan, then you will need to be very careful about which loan you pick. You want to be able to be sure that you will be able to make the repayments on the loan and so you need to be very careful.
Having a small income may not mean that you do not have much spare money though. It all depends on how much you spend of that income. If you have low living expenses then it may not be a concern. For most people though it will be and it is wise to take care when picking a loan and look at a selection of factors before picking one.
Repayment amount – one of the most important things to consider when taking a loan is the repayment amount. Each month your will have a fixed or variable repayment amount. In credit cards you will be able to choose whether to pay off the minimum balance, the whole balance or something between the two. With an overdraft it gets paid when money appears in your account and with a payday loan you normally pay the whole thing off in one lump sum. However, with most other loans you are expected to make regular monthly payments and so you will need to make sure that these are low enough for you to be able to afford. You should be able to easily find out how much the repayments will be before you sign up to the loan and that will help you to decide whether you can afford it. If the interest rate is variable though, the cost of the loan will go up if the base rate increases and so you need to be aware of this and make sure that you are confident that you will still be able to afford the loan in this situation.
Repayment quantity – the amounts of repayments is also something that you should be considering. If you will have repayments over a long time, then you have to think harder about whether you will be able to afford to continue to repay them over the long term. It is much easier to predict what your income might be like in the short term compared with the long term and therefore if you have just a small income and have concerns about repayments, it could be better to make sure that the loan you take out only has a small amount of repayments.
Size of loan – the size of the loan is really important as well. It is always wise to only borrow the amount of money that you need and nothing more. However, it is worth thinking about how much you can afford to repay as well. You need to consider that you will have to pay interest on all of the money that you borrow and so you will be best to borrow the lowest amount that you can. If you have a small income you are taking even more of a risk by taking out a loan and so you need to be even more careful with the amount that you borrow.
Flexibility – it can be worth considering how flexible the lender is or that loan is. You may find that because you have a small income that you will be more likely to find it hard to manage the repayments. You may feel that you want a flexible loan so that you can negotiate a payment holiday or a smaller repayment if you do struggle like this.
So although a small income may make you nervous of taking a loan, as long as you consider things that you can do to reduce the risk, you should still be able to feel confident in getting one. You will need to think carefully about how you will manage the repayments for the loan though and make sure that you can afford to do this or think about ways that you will make the repayments more easily affordable for you. Also consider the size of the loan and make sure that it is a size that you can manage and think about how flexible you might need it to be.