It’s no secret that the majority of Americans live with substantial debt over their heads. In fact, the average American debt is right around $38,000, not including mortgages. While there’s nothing wrong with taking out a loan or using credit cards, the financial prudence depends entirely on the person borrowing the money.
To make sure you’re making the best decision for your financial future, there are certain questions you should ask yourself before applying. Keep reading for our top tips for taking out a loan.
1. How Will Your Credit Score Affect Your Contract Agreement?
First, do you know your current credit score? If not, you may be completely taken off guard by what loan amount and terms you can get approved for. If you have bad credit, it may not be a good time to take out a loan.
The lower your credit score is, the less money you’ll be approved for. Additionally, a poor or limited credit history will also increase your interest rates, which can add hundreds or thousands of dollars to your total payoff amount.
2. Can You Afford the Payments?
Next, you need to think about monthly payments. Many Americans struggle just to make ends meet each month. If you bite off more than you can chew in regards to monthly payments, you could cause excess financial strain in your budget.
You may need to cut back on other expenses or lower your loan amount to comfortably afford the monthly payments.
3. Are There Any Early Payment Penalties?
When taking out a loan, you also need to ask your lender about any penalties or fees associated with paying the loan off early. Whether you decide to make larger payments of are using a lump sum (such as a tax return) to pay off the loan, you need to make sure you won’t be charged any fees.
4. What Are Your Loan Options?
Before you sign a contract with a lender, you need to make sure you’re aware of all your options. For example, there are unsecured loans, secured loans, co-signing options, payday loans, title loans, home equity loans, and more. There are also various companies, like Loanpal who can offer extra perks and benefits depending on your circumstances.
Make sure you do your homework and make the best decision for your financial security.
5. Do Your Needs Justify Accruing Debt?
Deciding when to take out a loan is important. You need to ask yourself why you need the money and whether or not now is the best time to take out a loan.
If you need the money for something important and time-sensitive, such as car repairs, home repairs, medical expenses, veterinary bills, or other emergencies, you can justify the loan. However, exercise caution when taking out a loan for non-essentials.
Are You Considering Taking Out a Loan?
Taking out a loan is a big commitment. You need to make sure you’re ready to take on those monthly payments and can accept the rates and terms of the loan. Once you sign on the dotted line, you’re 100% accountable for that money.
If you’re looking for more financial advice, be sure to check out some of our other articles before you go. We can help you lower costs, save money for big purchases, and of course, give you more information about loans. Good luck!