Getting a loan might seem to be the answer you’re looking for when you need money. There are many factors you need to consider quite well before applying for a loan. These are a must to make you sure that this decision is the right one for you at the moment. Here are 7 things to reflect on before applying for any loan.
1. Purpose
The very first thing you need to consider is the purpose of the loan. Why do you want to get a loan? Is it to pay off a certain debt, buy something new, invest or start a business. There are different types of loan depending on what you are seeking. For example, there are personal loans, business loans, student loans, equity loans and mortgages. Of course each has different characteristics and consequences.
2. Interest rates
Each loan has an interest rate that is usually specified when acquiring the loan. However, you need to keep in mind that some loans like mortgages may have varying interests throughout its payment period due to changes in the market. Keep in mind that you have to calculate the total amount you will be paying back for the loan to see if the interest rate is a good one or not. Most banks and financial institutions that give out loans are competitive, so use that to your advantage and get the best possible rate.
3. Credit check
There are two main types of loans. Credit check loans in which the lender does a credit check to see if your loan request is acceptable and no credit check loans which the lender doesn’t perform a credit check. Usually no credit check loans are given when the lender has very high interest rates and wants people to still apply for loans. Many people choose this type of loan to avoid bad credit due to applying to many loans which makes them seem like that are in financial trouble.
4. Down payments
Some loans require a downpayment to be paid for the loan. Usually it is 3 to 5 percent. Other loans which might require collateral such as your home, will not require you to secure a down payment.
5. Installment periods
Installment periods vary from one loan to the other. Usually you decide on the installment plan that best suits you. You need to bear in mind that the longer the installments will last the more interest you will be paying by the end
6. Current financial status
Before you apply for a loan you need to figure out if you will be able to afford paying it off. You need to be prepared to pay your installments on time to avoid unwanted consequences that will affect you and your family.
7. Consequences
If you do acquire a loan, you should be careful to meet all payment deadlines. If you miss many payments the consequences might include giving up your home, selling your property to pay it off, the bank or financial institution who lent you the money turning your case over to a debt collecting agency, bad credit or getting sued.
It is best to have all of these factors figured out before you apply for a loan. If you are uncertain that you will be able to pay it back, or that it is not the right choice for you then you should not be applying for that loan at this moment.