Everyone needs a little help sometimes. Unexpected financial storms come your way and it’s not uncommon to not have the right protections in place.
Taking out a loan is a viable option for warding off total financial disaster. Here are 5 tips you need to consider before taking out a loan.
1. Understand Terms
Many people assume that loans are a one to one transaction. You ask a lender for money and they provide it to you with your promise to repay it in a specific period of time.
But loan terms go far beyond the length of repayment. You could be paying fees just to fill out an application for the loan.
Find out the exact terms of the loan and how much it costs you to borrow. These small fees might sound like they don’t matter, but over time they accumulate the interest that could lead to a snowball effect for your debt.
2. Interest Rate vs. APR
Another thing to consider is whether the rate you’re quoted is interest or APR. The interest rate is one rate that includes the amount you’ll pay above and beyond the loan.
Annual percentage rate or APR includes the interest plus any additional fees needed for the loan. The APR is typically a higher and more inclusive rate.
Check the APR on any long term loans you plan to get so you have an accurate idea of how much you’ll repay. Online loan calculators are no good without knowing the fixed APR for your loan.
3. Creditworthiness
No one likes being judged. But when it comes to finances, all lenders want to know are the facts about your financial history.
They are taking a risk by loaning money to you. This means it’s their job to do their due diligence to make sure you’re someone who pays back their debts.
One way for them to double-check this is to request your credit history. Credit history can include everything from your past due mortgage payments to a judgement on a lawsuit.
Good credit means the lender can trust you to repay. Bad credit means you either have poor financial habits or simply bite off more than you can chew financially.
4. Shopping
Many people look at loan approval as a privilege. For this reason, they accept the first offer they get without shopping around.
But you should and can shop around for the best mortgage rate and terms. Shop around for your loan online to get the most offers to decrease your chances of getting denied.
5. Stay the Course
Keep a steady hand when repaying your loan. Once the financial emergency is over you might forget about how the debt helped you out of a bind.
Stay the course with on-time payments and don’t look at it as another bill. It’s basically imaginary money that you spent. It belonged to someone else but helped to solve your problems.
Taking Out a Loan
There’s no shame in taking out a loan. In fact, it can be one of the best financial moves you’ll ever make.
Keep making your payments on time and your credit score will reflect the difference. For more information and tips, visit our blog for updates.
