Most people have goals attached to their spending habits. If you’ve made plans such as purchasing a home or car, paying for your education, or relieving yourself of some other kind of debt, you may be considering a loan. However, loans are not agreements to be entered into lightly. Here are just five things to think about before signing the dotted line.
1. Credit Counts.
You might want to wait until after you’ve rehabilitated your credit before taking out a loan. If you go in with a poor credit history, that loan could end up costing you much more in interest – and that’s if you’re approved.
For this reason, some opt for online loans. However, the interest there is typically very high, and they’re really only recommendable in extreme emergencies.
2. Fees? You Better Believe It.
Never assume that the amount you get is what you’re going to pay back. In addition to interest, your loan may come with plenty of fees.
These can include insurance fees, withdrawal fees, establishment fees, and even early repayment fees. Yes, if you do well by paying your loan off early, the provider can charge you extra as you exit the agreement in good standing. That’s most commonly seen with mortgage loans.
3. Ask Questions
Even if you do actually read the fine print (and understand it), don’t sign anything before having a nice Q&A session with your loan officer. There’s a lot to know, from the precise kind of loan you’re taking, the amount of time you’re expected to pay it off in, any penalties involved, and more.
Also ask about any limitations with the kind of loan you’re getting. Can you spend the money any way you want? Ask questions until you’re satisfied that getting a loan is truly the avenue you want to take.
4. It Can Be Risky.
Taking out a loan can make us nervous because in the end, there are risks. For one, you should never try to get a loan from a suspect source that asks you for money first. If you do get a loan you fail to repay, you can get sued.
You also have to recognize that loans are not lines of credit, like our cards; you have a finite amount of time in which to pay it all off.
5. How Will You Pay?
With the understanding that you have a set amount of time in which to pay the loan off, create a failsafe plan to make it happen. Make a list of what your options are if you lose your source of income, and create a backup plan for payments you can’t make.
For instance, if you found yourself in a tight spot six months into repayment, do you have anything of value you could sell? Do you have an emergency fund with just enough to cover that payment until you set things right again?
Loans are not for the faint of heart, nor should they be. But if you educate yourself about interest and fees, and are extremely serious about paying back every penny on time, it can really boost your credit score. That’s on top of getting the injection of income necessary to make your goals a reality.