Taking out a digital loan can feel overwhelming because there are so many options out there! If this is the first time you’re considering taking a loan, here are some top things to think about before taking a loan:
Why do you need a loan?
First of all, what do you need to loan for? Determine what you need it for, how much you need, and when you’ll be able to pay it back. Only take a loan if you absolutely need one (emergencies, meeting a business goal, etc.) and have a plan to pay it back.
TIP: Taking out a loan to repay a loan is not advised. It makes it difficult to get out of a cycle of debt.
What is the fee or interest?
Loans (and overdraft services) are not free. There is a fee to access the loan. Make sure you know what your fees are.
In addition to fees or interest, some loans have other fees that could be attached to how you repay or maintenance fees. Most loans will also charge a late fee if you do not repay your loan on time. Read all your terms before taking a loan! (Click here to learn how much your loan really costs.)
How much time do you have to pay the loan back?
Your loan term is not forever.. You are required to pay back your loan within a specific period of time. Make sure that before you take out your loan you know exactly how much time you have to repay your loan so you can plan your finances.
How will you repay your loan?
Before you take out a loan, make a plan to repay it. You can adjust your living expenses to plan ahead and know exactly what you need to do to gather those funds. This will ensure that you don’t get caught with additional fees.
What is the repayment process?
Each loan has a different repayment process. Some may require you to go and visit a bank, others may allow you to transfer mobile money. Some loans, like Tala, allow you to make partial payments so you can repay your loans little by little. Make sure you know exactly what is required to repay your loan before your loan due date so you know if you have to give yourself time to prepare to repay.
What’s the penalty if I don’t repay on time?
If you fail to repay your loan, most loan services will require you to pay a late or extension fee.
Overdraft is a service that allows you to overdraw your account balance below zero. You are required to repay the negative balance, with a fee. Overdraft services will withdraw your balance immediately when you deposit money into your account. If your service has a compounding fee, the interest on your loan will grow continuously.
Knowing what service you’re agreeing to is important because the type of service impacts the fees and time required to repay.