Key Things You Need to Consider When Getting a Loan
Before you enter into any financial commitment, it is always a good idea to explore your options and learn more about the obligations that will arise as a result of you entering into the said commitment. If you want to take out a loan and not be the sucker in the room to prevent the lender from taking advantage of you, pay attention to the following things:
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First of All, Is the Loan Even Justified?
Some people take out personal loans when they don’t need to. While most people have a pretty good handle on earmarked personal loans such as auto loans, student loans, and mortgage loans, general non-earmarked loans are prone to abuse. You always have a right to do whatever you want with a personal loan. Nonetheless, you should avoid taking personal loans to fund day-to-day living or unnecessary frivolous purchases. Even when you are checking out title loans near you to fund an asset purchase, take the time to figure out exactly how much you need so you don’t borrow more money than you require for the said purchase.
The circumstances where taking a personal loan is a good idea are often very clear and don’t require any mental gymnastics on your part. If you have to rationalize the decision, you should consider postponing the decision for some time for an opportunity to reevaluate later. Some of the circumstances where taking out a personal loan is justified include when you want to consolidate your credit cards, finance a significant purchase such as furniture, pay for a medical procedure not covered by your insurance, or finance a major life event such as a wedding. You may also take a personal loan if you want to systematically raise your credit score.
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If It Is a Business Loan, Do You Know The Options Available to You?
There is a lot of misinformation surrounding the topic of business loans. Obtaining a business loan isn’t as hard as some publications might want you to believe. The trick is to evaluate your needs and your prevailing financial position and then go looking for a loan or lending institution that is a good match for those details. Most of the frustration people face when securing a business loan can be avoided by taking the time to prepare properly.
You should also take the time to explore all the alternative lending options available to you as far as business financing is concerned. Institutions such as Small Business Funding or the government’s Small Business Administration have very friendly terms for business loans. You may be able to secure a loan with them with a lower credit score than you can use to get a bank loan. Further, the SBA offers grants to special groups such as veterans and women and you may be able to qualify for such grants and so skip the process of taking out a loan all together.
One of the most valuable things as far access to credit is concerned is a business owner knowing that banks are not the only institutions you can approach to get a loan. There are several creative ways to use credit such as invoice factoring. Alternative lending institutions can come to your rescue when banks fail you or when you want to secure a small loan to finance operation costs in the short term.
Evaluating the Terms of a Loan
The terms of the loan will determine how much you end up owing the lender and the penalties that may accrue in case you fail to meet any of your obligations. It is very important that you read through all the terms and appreciate what they actually mean. If this calls for you taking out your calculator and punching some numbers, you should probably pull one out. Don’t take any chances.
Some of the things you need to pay attention to include interest rates, origination fee, and penalties. A good credit score will get you more lenient interest rates. If it is compounding interest, you should pay attention to how often it compounds. Depending on how your loan is structured, small details like how often your interest compounds can have a significant impact on the amount you eventually pay back.
Further, you should consider the loan term and the loan conditions such as loan use specifications, early repayment terms, and the penalties that will be applied if you miss a monthly installment. Whether the loan is secured or non-secured, you should also pay attention to the penalties prescribed for nonpayment.
Is the Lender Worth Forming a Relationship with?
If you are a forward-thinking individual, you probably already know that it is best to take out a loan with an institution you can build a relationship with so that you can leverage the relationship in the future for other financial projects. Obviously, you should always prioritize the institutions that offer great deals.
Some financial institutions take relationship building seriously and may even assign you an account representative or manager. Having an account manager can be very valuable when you encounter any problems during your loan term or when you want to take advantage of other services offered by the same financial institution. If you really like the financial institution you’ve taken the loan with, you can consider moving some of your accounts to them to make managing your finances more fluid and easy.
Author: Ritchie Hedderman
