When it comes to borrowing money, be it a mortgage or a simple car loan, people are generally more uninformed than they should be. The reason for this is rather simple. We are not bankers. Those that are bankers need not worry about things like this because they already know. For the rest of us earthlings, however, knowing what to consider when taking a loan is very important to our financial future. For those folks, here are some things that they should know:
It is very important to know what type of loan you have. Some loans will have specific features that you need to know, and some have rules that are unique to that type of loan. Find out what type of loan you are having, and then learn all you can about it. Make sure you speak with a good lawyer before signing any large mortgage, and make them break the loan down into simple language. Do not skip the fine print.
One of the most common sense things to consider when taking a loan is how much interest will be charged. Not only does the interest rate matter, but you also need to consider the length of the loan. Over time, you end up paying more than you would ever expect with a loan. Getting a good interest rate is vital, and you should shop around for the best possible rate. Also, try to get as short of period as you can afford to pay. The shorter the loan, the less you have to pay in interest.
Another consideration when you take a loan is whether or not it is back loaded. Do you have to pay a balloon payment towards the end of the loan? Do the payments increase later? These types of loans are sometimes very difficult for people because you never know where you will be later in life. Perhaps you will be between jobs or fallen on hard times. These potential scenarios must be considered before taking on these types of loans. Ask questions and know exactly what you will be paying up front and ahead of time. If you do not feel comfortable, then do not sign anything.
If you are taking a loan and your credit is less than stellar, consider waiting on a time when you can improve it. A slightly better credit score can sometimes make a huge difference in the amount of money you end up paying over the life of the loan.
Think long and hard before you consider taking on a co-signer. Many people use this when they get started and it can cause major problems with parents, friends and family members. Money and family do not usually mix well, and you should remember this before you use a co-signer. Some companies will try to tell you that the co-signer will fall off the loan over time, but this is usually not accurate. Stick with your own devices to borrow money. You will be very glad down the road.
These are far from all the things you should consider before taking a loan, but they will help to get you started. Just remember that if it does not feel right, it usually isn’t. Always talk with a lawyer and let the experts check out the fine print and you should be just fine.