Should You Take a Loan? How to Assess Your Budget

People usually take loans when they don’t have enough money for a purchase. However, it’s important to evaluate your capabilities so that repaying the debt doesn’t become a heavy burden. Here’s how to choose comfortable loan conditions.

What to Do Before Applying?

Check Your Credit History and Score

The better they are, the higher your chances of loan approval. Additionally, people with a good score may sometimes receive more favorable terms.

Review the Key Interest Rate

It affects the loan interest rate. You will always pay the bank more than you borrow, but you should be comfortable with the difference. The higher the key rate, the larger the overpayment. Also, check how you might reduce the rate — for example, by taking out insurance.

Consider Alternative Options

It may be more convenient to avoid debt altogether. For instance, instead of buying a new car on credit, you could buy a used one with cash.

How to Assess Your Budget?

Step 1: Review Income and Expenses for at Least Three Months

If at the end of each period you have a surplus, check its size. If you break even or run a deficit, you probably won’t have funds to repay the loan.

If funds are insufficient, evaluate your income and expenses. Are there any costs you can temporarily cut? Can you increase your income? The longer the potential loan term, the more important it is to understand whether you are ready to reduce expenses and increase earnings.

Step 2: Calculate How Much You Can Repay Monthly

If you have free funds at the end of each month, calculate their amount. This will be your maximum monthly loan payment. Exceeding this amount is risky. Ideally, the monthly payment should not exceed one-third of all income.

It’s better to analyze stable income rather than irregular sources, since irregular income may not appear consistently, but the loan must still be repaid.

You should also always maintain a financial cushion for unexpected events. These funds will help during illness, equipment breakdowns, or job loss. The cushion should equal 5–6 months of your income.

Step 3: Use the Bank’s Loan Calculator to Choose Conditions

Enter the amount and term you plan to borrow. The calculator will show an approximate monthly payment. Try adjusting the period to see how it affects payments. This helps you find comfortable loan conditions.

The final amount given by the bank may differ from the calculator’s estimate, but it will still give you a clear idea of the main loan parameters.