Loans can be a lifeline for many people in many different situations. But there is no doubt that it pays to think carefully before taking out a loan of any kind.
We’re a nation of borrowers. We rely on credit to live our desired lifestyle or even to get ourselves financially ahead. It’s not a good idea to make it a habit to borrow money, unless you’re confident that you can get your debt under control. But while the credit situation here in the U.S. has been rough during the past few years, you may find that taking out a loan today (whether it is secured or unsecured) is not an impossible matter, especially if you’ve got good credit. If you are with a bank and you have a good record with them, it may not take much to acquire a loan. Furthermore, if you’ve got excellent credit, there are many ways to get cheaper financing.
Questions To Ask First Before Taking Out A Loan
When you need the money, you should ask yourself a few questions: should you get a loan in the first place? And if you do, which one should you get? Here are some more points to take in:
#1 Why are you getting a loan?
There are lots of different reasons for getting a personal loan. You might be consolidating debts of some kind. You might have some home improvements in mind. Alternatively you might want to get a newer car and a few other essentials you wouldn’t be able to afford otherwise. But in some of these situations, getting a loan to afford certain things may not be the best approach to take. This would be the case if you tend to rack up too much debt.
In addition, if you cannot come up with a firm answer for the reason for your loan, think seriously before you get one. You will be saddled with monthly repayments for several years and if you have no firm reason for needing one, you don’t need the hassle or expense.
#2 Should it be secured or unsecured?
A secured personal loan means that your loan will be secured on your property. If you aren’t able to pay it back on time, you could end up losing your home. There are also such things as secured credit cards, which are credit cards that lend you money based on a deposit amount you set up with the credit card issuer. On the other hand, unsecured loans normally have higher interest rates and can be harder to get –- particularly if you have a poor credit record. Check out cards for bad credit or no credit if you’re interested in building up your credit line over time.
Ask yourself which type of loan will be best for you; it can depend on how much you want to borrow as well.
#3 Have you thought about the monthly payments and the loan duration?
The shorter the loan term, the higher the monthly repayments will be. In addition to this, you need to think about whether you want to be stuck with a loan for a longer length of time.
You need to weigh certain factors when you ponder your financing needs: review your monthly payment schedule, the total amount of the loan and the length of time it will take you to pay it back. The rule of thumb is to go for the shortest length of time possible and still be happy with the monthly payments. Obviously, if you are going to find it a struggle to pay back $150 a month instead of $100, this should become an important consideration.
#4 What happens if you want to pay off your loan early?
In some cases, if you want to pay your loan off early into the term, you could be penalized for doing so. That is, you could end up paying for the privilege of retiring your loan early.
Before you apply for a loan, find out its terms and conditions and determine if there are consequences for paying off your loan early. This will give you an idea of what to expect before you sign up for it.
As you can see, it is vital to address a number of questions before taking out any type of loan. Jumping at the first opportunity you see may not produce the results you want. So make sure you think it through carefully before making a decision you might have to live with for several years.
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