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Budgeting for Repayments

When thinking about applying for a loan, most people focus on the amount that they need to borrow along with the interest rate, while these are important things to consider, you should also plan for how you are going to repay the loan, as this will give you a clear understanding of how much you can afford to borrow and over how long.

By taking the time initially to assess your situation and what you can afford, you will save yourself time and effort in the long run. Having worked out your needs and finances you will be able to cut through the many loan deals and get to one that suits you best in less time, and you will know that the repayments will not be something that will worry you in the future.

One of the first steps to take is to work out how much disposable income you have each month. To do this you need to add up all of your current expenses, including mortgage/rent payments, gas and electricity bills, water rates, phone bills – make sure that you include all of your regular outgoings in this figure. Once you have this total, you should then deduct this from your monthly income, the result is your disposable income.

From this figure you need to deduct the costs of socialising and also allow some extra for unexpected costs to give you a good guideline amount for the maximum monthly repayment that you could afford for a loan.

Knowing what you can afford to repay each month will help you when looking for your loan, it will allow you to look not only at the APR but also to check that the monthly repayments fall within your budget. Generally speaking, it is best to take out a loan over the shortest term that you can, as this will lessen the overall amount of interest that you pay. Having a clear idea of what you can afford to pay each month allows you to get the balance between the monthly repayment amount and the length of the loan term effectively.

A loan is a means to an end, giving you the money you need to pay for whatever purpose you intend it for, however you need to look not only at you plans for the money but also how you are going to repay it, doing so will keep your finances in order and mitigate possible repayment problems in the future.