Considerations before applying for a loan
Given the consequences that come with defaulting a loan, loan application shouldn’t be a knee jerk reaction but rather something that is well thought out and planned for. You need to understand what type of loan you are going and how it will affect your financial situation in the future. Ensure you have all the required information before you set out to apply for a loan. In light of this, what are some of the considerations before you apply for a loan?
Type of loan
Truth be told, there are different types of loans in the market. Before applying for a loan, you need to understand the type of loan you are going for and how it will impact your financial situation. Some common loan types include: student loans, mortgage, business loans, personal loans, auto loans and equity loans. Each loan type serves a different purpose. For example, you cannot apply for a mortgage when you just need money to buy a car. The same principle applies to personal or business loans.
Irrespective of the type of loan you go for, interest rates are an important consideration as they indicate how much money you will repay to the lender. Higher interest rates means high repayments and vice versa. As regards interest rates, you need to ensure that you read the fine print and ensure that there are no hidden charges such as credit report fees, underwriting fees, appraisal fees, origination fees, processing fees, and administration fees. It is important to note that in as much as the aforementioned fees may not actually affect the interest rates, they will be included in your monthly fees and therefore this means that you will end up paying a higher amount monthly.
Loan repayment period
Considering the fact that different loan types have different loan lengths, it is important that you weigh your options and choose a loan type repayment period you are comfortable with. Ensure you discuss with your bank or your lender on the loan repayments period and find out if you are comfortable with the same. You can always negotiate with your lender a repayment period that is okay with you.
Believe it or not, not all loans require that you pay a deposit upfront. In fact, financial lenders use your home as security for your mortgage and therefore no need for a down payment. Whatever the case, ensure you know the percentage of down payment you need to deposit with the lender before taking out a loan.
Are you able to repay the loan without straining your finances? This is a very important consideration as going for a loan that you are unable to repay will simply mean defaulting, worsening your credit score or losing your collateral.