If you are on the brink of an exciting new chapter of your life and wondering how to pay for it, you may have thought about borrowing money. Taking out a loan to finance personal and professional ventures is common in Sweden, but it is still an important life decision that deserves careful consideration. In this article, we go through 9 questions you can ask yourself before taking out a loan to guide you in the right direction. We hope this will help you evaluate your choices more thoroughly so you can make an informed decision.
Once you are certain you would like to take out a loan, you can learn more about finding the best one for your needs at Enklare, a loan comparison service based here in Sweden.
Why am I taking out a loan?
The first thing to ask yourself when you want to apply for a loan is to ask why you are doing it. Determine the exact reason you are borrowing money. Many people do it to finance a home, a vehicle, a new business venture, higher education, or to pay off existing debts. You should always know the purpose of your loan, as it can help you answer some key questions you need to answer down the line.
How much money do I need to borrow?
Once you figure out the purpose of your loan, you should have an idea of how much money you want or need to borrow. Determine the exact amount – such as higher education tuition and living expenses or how much a new or used vehicle costs – and avoid borrowing more than necessary. You should calculate the funds required to cover the specific expenses to minimise unnecessary debt.
What is my credit rating?
When it comes to taking out a loan, it is necessary to have a personal credit report ready for lenders to access your reliability. Your credit rating is essentially an indicator of how you have managed your money in the past, and a good rating can give you a wider range of loan options with potentially better loan terms.
How to obtain a credit report in Sweden
To obtain a credit report in Sweden, you can reach out to a credit reporting agency such UC (Upplysningscentralen) or Bisnode to request a credit report request form. Typically, you fill out the request form by providing the information needed, such as your full name, personal identification number (personnummer), address, and contact information. You may need to verify your identity with identification documents, such as a national ID card or a valid passport.
When you have submitted your request form and it has been approved, you can receive your credit report, which includes details about your credit history, outstanding debts, payment history, and other relevant information such as defaults or late payments.
What kind of loan is available for me?
In Sweden, there are many types of loans available, depending on your needs. They include personal loans, car loans, student loans, fast loans, mortgages, business loans, and more. The key is to understand which types you are eligible for. This depends on your residency status, the purpose of your loan, your income, your credit score and history, your age, your identity (for example, as a student, as a business owner, as a homeowner), and lenders’ policies.
When you ask yourself this question, it drives you to uncover the kinds of loans that are available for you and what you are qualified to apply for. This takes you one step closer to uncovering the best loan for your situation.
Can I afford the loan payments?
You should also consider whether you can afford the loan payments. Many people borrow money because they do not have enough, and you should evaluate your financial situation to determine if you have sufficient income to comfortably pay back the loan. Figure out your monthly budget, including expenses and income, and ensure that loan payments fit in with your financial capabilities.
What will be the total cost of the loan?
Repaying a loan is not just about paying back the amount that you have borrowed – otherwise known as the principal. There are other fees and charges involved, such as interest rates, application costs, and additional charges. Calculate your monthly payment amount and determine if it aligns with your financial goals.
What are the loan terms?
You should also understand the terms of the loans – or what you are agreeing to – before you sign a contract. Look for details like repayment schedule, flexibility, and the duration of the repayment period. Understand how much you are meant to pay and how frequently you are meant to make the payments. Most loans are repaid in equal, monthly instalments, but it is not the case for all loans.
What are the consequences of defaulting on the loan?
Defaulting on loans has consequences, ranging from a damaged credit rating to legal, drastic ones. Before borrowing money, ask yourself if you know what the consequences of defaulting are and the likelihood of defaulting. You should also plan for emergencies and have a contingency plan before signing any contract.
Do I need to take out a loan?
Finally, one of the things that people may overlook is whether they need to take out a loan at all. Sometimes, people may not be aware of the other options that are available to them, such as cutting back on expenses or looking for ways to earn more to finance certain ventures. Of course, it is not always possible to find an alternative if you want to borrow a large sum of money, but it is recommended that you examine all possible avenues instead of going straight to evaluating loans.
Final words for those considering a loan
Taking out a loan is a serious decision that requires thorough research and consideration. Nevertheless, it can be – and has been – a great way for many to start their business, buy a new home, finance a new vehicle, or meet other life milestones. While you should be cautious, taking out a loan does not lead to financial ruin. You should not be overly worried if you have done your due diligence and know what to expect. Hopefully, this article has given you some insight into what you should consider when you borrow money, and you can take the steps needed to make an informed decision.