Considering affordability on instalment loan borrowing

I can never ever even begin to explain the importance of affordability on finance. If someone takes out finance and then can’t afford this they will soon start to see themselves struggling with repayments. Missing loan repayments or on other debts can nearly always result in severe negative consequences for that person involved and most people will always want to avoid this when possible. People have to always therefore know that the finance is affordable before any application can then be made. It does not matter whether someone is applying for short term loans, instalment loans, credit cards etc. They must always be affordable for that person to manage so the debt can then be repaid.

I have found that a good way to test whether finance is affordable would be for someone to work out the average amount of their disposable income and then see if they can afford to make the repayments required on the said finance. I appreciate this disposable/spare income could vary slightly on a month to month basis however, it should still provide a clear understanding as to whether or not finance is affordable. People can often locate this income by adding up all their income expected for the month ahead. This could be for things including work salary, plus any tax credit and other benefits someone may receive. Then from that amount the same person over the same time frame can then deduct all their expenditure for that period. This then can include their rent/mortgage payments, their transport monthly costs as well as food costs and other living expenses. If they have other debts that they are paying for e.g. instalment loans, this must also be included. Now after that calculation is completed the final figure left over is the disposable income for that period. If this figure is high for a person then the chances are the finance is affordable however, if low or if it does not cover a financial commitment payment that is due then no application should then be made.

It can be common that some finance types will be more affordable and realistic for someone to repay than what others are providing to that same person. Take payday loans for example, when these are obtained a person must look to settle the debt just as soon as they are paid from their employer. These loans as well as other short term loans can also charge high interest amounts and this can then make repaying them even harder. A common borrowing alternative can be an instalment loan, sometimes here people can take out high value loans and then repay the debt over a long period of time. Also now people can potentially borrow an instalment loan for a similar amount to a payday loan but then they have the ability to repay the loan back in instalments. This is easier for someone to budget for as they do not have to clear the debt in one go.