Every year, more than 30% of people go through the process of taking out a loan for one reason or another. Some do it to pay for college, while others do it to pay off a past-due utility bill.
If you’re thinking about taking out a loan at the moment, you should know what you’re getting yourself into before you do it. Loans can be very useful when you’re responsible with them. But they can also turn into a huge headache if you don’t know what you’re doing when you take one out.
Let’s take a look at 10 things that you should know prior to taking out a loan from a lender.
1. Do You Definitely Need to Borrow Money?
There are some people who rush right out and get a loan before even considering if they really need to do it. You might not have to take out a loan if you don’t want to.
For example, let’s say that you have a past-due utility bill hanging over your head. You might be tempted to take out a loan to pay it off.
But if you were to take the time to contact your utility company, they might be able to help you work out a repayment plan through them instead. This would allow you to pay off an outstanding debt over time without using a loan.
There is absolutely nothing wrong with taking out a loan when you need to do it. But you should explore other options prior to applying for a loan to see if they might be a better choice for you.
2. How Much Money Do You Need to Borrow?
If you decide that you do, in fact, need to borrow money for whatever reason, the next thing you’ll want to do is think about how much you need to borrow. You should crunch the numbers to come up with the exact amount that you need.
Many people guess and end up borrowing either too much money or not enough money when taking out a loan. As a result, they either put themselves into a tough financial spot despite taking out a loan or leave themselves with extra money that they then owe back later.
Figure out the right amount of money to borrow. You don’t want to take out too much or too little when obtaining a loan.
3. How Much Can You Afford to Spend Each Month Paying Back a Loan?
Once you take out a loan, it’ll be up to you to pay it back over time. You’ll need to send your lender money every month to cover the cost of your loan.
While you’re figuring out how much money to borrow, you should also figure out how much money you can afford to spend every month repaying your loan. If you can only pay, say, $20 a month, it’s not a great idea to try to get a $20,000 loan. It’ll take you forever to pay it off!
The amount that you can devote to repaying a loan should play a big part in how large the loan is in the first place.
4. What Is Your Credit Score?
When is the last time you checked your credit score? If it’s been a while now, you’re going to want to get around to doing it before you start reaching out to lenders about taking out a loan.
If your credit score is bad, it won’t necessarily preclude you from getting a loan. There are lots of lenders out there who specialize in helping people get loans regardless of how low their credit scores might be.
But you should have some idea of where your credit score stands before you start sending in loan applications. It’ll help you decide which lenders to try and work with when you’re in the process of applying for loans.
5. What Does Your Credit Report Look Like?
Many lenders will look beyond just your credit score when you apply for a loan through them. They’ll also scan through your credit report to see how you’ve done with loans in the past.
If they find that you’ve made a habit out of sending late payments to other lenders, they might not be willing to provide you with the loan you’re looking for, even if your credit score is in decent shape.
You should get your hands on a copy of your credit report at the beginning of the loan application process. It’ll help you see some of the things that might hold you back from getting a loan.
6. Who Are You Going to Turn to for a Loan?
When you make the decision to take out a loan, you’re going to find that there are hundreds of companies out there that are more than willing to take an application from you. There is no shortage of options when it comes to lenders.
You should look for the most reputable lender to provide you with cash loans. They should have a wealth of experience in the loan industry, and they should also make it easy for you to apply for a loan through them.
After you find a lender that you like, take a few minutes to apply for a loan through them right on their website. You can usually receive an answer from them in a few minutes at most.
7. What Kind of Loan Terms Are They Going to Offer to You?
If a lender extends loan offers to you after you apply for a loan through them, you might be over the moon. You might even snatch up the first offer that looks halfway decent to you.
But you should take things a step further than that. You want to make sure a lender is giving you the best loan terms possible before agreeing to accept a loan from them.
Check out the interest rate that’s attached to your loan. If it’s up in the high teens, the 20s, or potentially even the 30s, that’s going to make it very difficult to pay it back. You should search for loans with much better loan terms than that.
8. How Long Is It Going to Take to Pay Back a Loan?
Lenders will often give people the option to pick how long they want to take to pay a loan back. But the longer they choose to take, the more they’ll usually end up paying for a loan in the long run.
With this in mind, it’s important for you to think long and hard about how long it’s going to take you to pay back a loan. If it’s going to take you well over five years to pay back a loan, it may not be the right loan for you.
You should try to find a loan that you can pay back within one to three years, if possible. You won’t have to worry about that kind of loan following you around for a long time and preventing you from making advancements in other areas of your life.
9. How Easy Will It Be to Make Loan Payments?
Is a lender going to make you jump through hoops to make loan payments to them? If you suspect this might be the case, you should look for a different lender.
Some lenders are still seemingly stuck in the 20th century and aren’t able to process electronic payments from their customers. This can make it difficult for you to make payments to your lender, and it can also result in late payments if you’re not careful.
Find a lender that allows you to make payments at any time of the day or night right online. It’ll make life so much easier on you when you take out a loan.
10. When Is Your First Loan Payment Going to Be Due?
Shortly after getting a loan, you’ll be forced to make your very first loan payment. You want to make sure you’re ready for it so that it doesn’t catch you off guard.
Some lenders expect a loan payment the very next month, while others give people a month or two to get back on their feet before asking for a payment. No matter which approach your lender takes, you should be prepared for it ahead of time.
The last thing you want to do is miss your first loan payment to a lender. It’ll get things off to a bad start.
Ask Yourself All These Questions Before Taking Out a Loan
Taking out a loan has become easier than ever before to do. You can get anywhere from a few hundred dollars to tens of thousands of dollars deposited into your bank account in just hours in some cases.
Before you start applying for loans, though, you should consider everything that we’ve mentioned here. It’ll help get you ready to take out a loan and make sure you take out the right loan through the right lender.
Want to learn more about taking out loans? Read the articles on our blog to get additional information on the different types of loans that are available to you.