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When choosing how much you need to borrow from a lender, it makes sense to go through a checklist of things you need to consider. Though this isn’t an exhaustive list, it may help those who are new to borrowing. Here’s Asteria’s guide to choosing a loan amount.

1. Take Stock of Your Income

Your income is the most important factor when choosing how much to borrow. In the Philippines, work is generally plentiful, but wages can be a little lower than other parts of the world. Always ensure that you are earning enough to afford any repayments or charges that you may incur from taking out a personal loan or salary loan. You may need to increase your income by taking a second job or starting a home business, especially if you are considering borrowing a larger amount of money.

2. Be Realistic About Repayments

Repayments must be accounted for every month, without fail. Missing repayments will eventually cost you more money and it will also affect your credit rating. When you’re deciding how much to borrow, be realistic about how much you can comfortably afford to pay back each month. This must be a figure you can manage, without having to cut back on life’s essentials such as food, house payments or transport.

3. Account for Unexpected Situations

Life can be unpredictable and dealing with emergencies, unexpected problems or sudden changes in circumstances can require a little extra funding. When considering how much you need to borrow from a lender, it makes sense to account for a least a month or two’s worth of repayments if you can. This means that even if you become unexpectedly unemployed or have to deal with an expensive family crisis, you can still find the cash to make your payment, while you organise alternative sources of income.

4. Be Specific About Why You’re Borrowing

Most people would like a little more disposable income, but personal loans and salary loans are designed to be used for specific purposes. Things like home repairs, vehicle maintenance, college fees or holidays are all common reasons borrowers give for taking out credit. Think about what you are planning to do with the money you borrow before you decide on a specific amount. Price up and compare service providers such as mechanics, tradespeople and travel operators to get an idea of how much you may need to request.

5. Try to Get the Best Value from Your Lender

Not all lenders are equal and though all legitimate finance providers in the Philippines are regulated and legally checked, you need to be aware of the difference in interest rates. Depending on your credit rating and a number of other factors, the interest you pay can vary quite dramatically. Always choose the lender who can offer you the lowest interest rate if you plan to pay the loan off over a number of years. It can take time to find the right lender, but the additional effort will pay off further down the line.

6. Allocate Funds Before You Borrow Them

Be as specific and detailed as you can about how you plan to use the money you’re borrowing. For example, if you plan to use a personal loan to pay for a new kitchen, break down how much each unit or appliance is likely to cost. This means you won’t end up having to borrow more halfway through your project. Estimating is generally far quicker than going through every element of how you plan to spend your loan, but it is also a far less accurate and considerably more risky way to approach to personal finance. As always, taking the time to plan in advance is highly recommended.

7. Decide on a Budget and Stick to it

Budgeting is essential when you’re using personal or salary loans. Allocating specific amounts of money to pay for things like transport and other daily expenses will help you to avoid overspending. Always factor in loan repayments as part of your essentials, as missing them can create unnecessary problems. You can be slightly flexible with your budget if you ensure to include a small “buffer” amount but learning to spend well within your means is highly recommended.

8. Last Minute Checks

When we’re under pressure, we can make mistakes. This is part of human nature. For that reason, it makes sense to conduct a few last-minute checks before you submit a loan application officially. Go through everything you have written down and double check that you have accounted for everything you need to pay for. In the case of holidays for example, ensure you’ve factored in spending money and emergency funds. If you’re paying for a vehicle, remember to account for repairs, fuel and other potentially overlooked costs like tax and insurance. Though it can be tempting to act on impulse when you’re in a difficult financial situation, this is rarely a sensible approach to borrowing.

9. Don’t borrow too frequently

If you’ve already taken out a loan in the past year or so, consider waiting a while before you apply again. Though lenders will be happy to provide you with funds, the interest rate you will be offered is directly affected by the number of times you have requested a loan in the past. If you are constantly borrowing, lenders may see you as a high-risk customer, meaning that you won’t be eligible for certain products and may end up paying considerably more for finance than you need to.

10. Use other sources of funding to cover some costs

If you’re borrowing to pay for the cost of a high value item or a large project such as a whole house renovation, it can make sense to use multiple sources of funding, rather than just one personal loan. Consider cutting back on luxuries while you’re paying for things like tradespeople or materials and use salaried or other income to cover as much as you can. This way, the loan amount that you need to request will be significantly lower.

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