Everyone needs help from time to time. A loan can give you the funds you need to move forward. Before applying for loans, ask the following questions.
Questions to Ask Yourself
Why Do I Need A Loan?
Perhaps you are facing a personal emergency, you want to consolidate other debt, or you need money for a home improvement project or auto repair.
Understanding exactly why you need a loan can help you accurately determine how much you need to borrow. Additionally, many lenders will ask you to provide a reason for the requested funds.
How Much Do I Need and What Can I Afford?
Create an accurate picture of how much money you need. Do your research. You don’t have to account for every dollar and cent, but you should have a reasonable estimate of how much you’ll need for your loan.
Of course, it’s also important to determine how much you can afford. Consider your income, monthly expenses, and any other monetary commitments.
Will I Be Able to Make Payments Throughout the Term of the Loan?
Are you planning any big changes such as getting married, going to school, switching jobs, having a child, etc.? Obviously no one can see the future, but it’s important to think ahead.
Look at your plans for the next few years, and adjust your maximum monthly payment accordingly.
Questions to Ask the Lender
What is the Repayment Period and Payment Schedule?
Before signing for a loan, you should know the repayment period, what the repayment schedule looks like, and how much you are required to pay at each interval.
Essentially, ask your lender the following three questions:
- Exactly how long do I have to repay the loan?
- How often do I need to make payments?
- How much do I need to pay for each of these payments?
What is the Interest Rate?
Your interest rate will likely depend on a few different factors like your credit score, how much you’re borrowing, your income, etc. Your interest rate will likely be stated as an APR or annual percentage rate.
Ask if the interest rate is fixed, declining, variable, etc. Ask about the Total Amount Repayable (or TAR) to understand exactly how much you’ll have to repay including interest and fees.
Are There Other Fees Associated with the Loan?
Some lenders use application fees or origination fees. Others have insurance fees, disbursement fees, repayment fees, or deferment fees. Ask your lender about any associated fees before you apply for the loan.
Are There Restrictions on Loan Money Use?
Some lenders limit how you can use the loan money. This is particularly true for auto loans, student loans, mortgages, etc. Most personal loans shouldn’t have strict limitations, but it is important to ask.
Are There Penalties for Early Repayment?
If you get a promotion, bonus, or some other extra influx of cash, you may want to pay off your loan early. Some lenders have early repayment fees. Ask the lender if there are any penalties or fees for making extra payments or repaying the loan early.
What Happens if I Miss a Payment?
Life is full of unexpected events. It’s important to know what will happen if you are late making a payment or miss a payment altogether. There may be late fees or other penalties.
Also, ask the lender what would happen if you missed several payments or stopped paying at all. It’s important to understand what to expect if the worst should happen.