Will I be able to repay my loan?
These should be the first questions that you ask yourself when deciding whether or not to apply for a loan.
To assess this situation for yourself, you can use the same technique that many credit unions use...your debt to income ratio.
Simply put, this is the total of all your monthly payments divided by your gross income. Most financial institutions consider that you are able to repay your obligations if your debt to income ratio falls within a 36% to 40% range. The remaining 60% of your income goes toward paying your federal and state taxes, utility bills, and other expenses such as medical, clothing, food and childcare. If these other expenses take up more than 60% of your income, you may not be able to afford the loan even if your lender thinks you can. Keep in mind, the lender does not know what your household expenses are or what it costs to maintain your lifestyle.