Secured Loans

Planning for Repayment Before Taking on the Loan

A loan represents a binding legal agreement between a lender and a borrower, and the consequences of defaulting are severe. With a secured loan, you risk repossession of your house, car or other valuable property if you cannot keep up repayments. With any loan or credit account, missing repayments will result in late fees, higher interest rates and eventually may lead to legal action. Before you take on a loan, make plans to include repayment in your present budget.

Calculating Loan Repayments

Before applying for a loan, assess your overall financial picture and your daily saving strategies to make sure you can take on additional debt. Use a calculator to determine how much your monthly repayments will cost, including interest. Then review your income and your current debts and household expenses to confirm that you have enough cash left over to keep up repayments on your new loan.

You can find free loan calculators online at financial websites. If you're applying for a certain type of loan, such as auto finance or a mortgage, look for calculators through online auto dealers or mortgage lenders. Using a calculator does not place you under any obligation to take out financing from a particular lender, but you should avoid giving out any personal financial details online unless you are applying for credit through a secured site.

Use an online calculator to enter the amount of the loan, the lender's interest rate and the amount of cash you wish to put down. You will also be prompted to enter the repayment term, or the number of months or years required to pay off the debt. Once you've submitted these details, the calculator will provide an estimate of your monthly repayment. You may adjust this amount by increasing the cash deposit, lowering the interest rate or lowering the amount of the loan.

If the monthly repayment on a loan would stretch your budget, consider taking on less financing, finding a lender with a lower interest rate or saving money for a larger cash deposit. You can also evaluate your budget to find ways to cut your costs in other areas. For instance, if you're spending a lot of money on fuel and car insurance, consider taking public transport rather than commuting by automobile. If your grocery bills are high, cut down on packaged foods and name brand products to trim the costs of food.

Unless loan repayments should fit comfortably into your monthly budget, or you can increase your income with a part time job or seasonal employment, avoid taking on new debt. The more debt you acquire, the more financial pressure you'll experience in your daily life, especially if you've secured a loan with a valuable asset like your home. Planning for repayment in advance will ensure that you have the means to cover this important legal commitment.

Planning for Emergencies

Even the most careful planning can't guarantee that you won't suffer a sudden loss of income. An accident, illness or a redundancy at work may affect your earning potential. Consider some form of insurance to protect your monthly repayments, so that your obligations will be covered if anything unexpected should happen. Payment protection insurance, income protection insurance and mortgage payment protection can cover loan repayments if you become unemployed for a qualified reason.

Planning for repayment before taking on the loan requires preparing for any eventuality. Building a savings account will guarantee that you have funds available to cover household financial emergencies that might interfere with your loan repayments. Take precautions to protect your financial stability by devising a strategy to pay off your loan under any circumstances.