A quick guide to ensure that your loan will benefit, not burden, you.
Nearly everyone needs to take out a loan at some point – whether it’s for a home, a car, an education, or even a holiday. The good news is that it’s easier to get a loan than ever before. The bad news is that it can sometimes work against you, unless you’re well prepared. This article includes a few pointers to keep in mind before you sign on that dotted line.
Make sure you’ve got this covered first.
‘This’ includes many things, but they basically all come down to being absolutely certain that you’ve found yourself the best possible rate, taken into account your long-term plans, and prepared safeguards for any potential pitfalls. Here are a few examples of what you should have achieved by now:
- A clear idea of your long-term budget to make sure you won’t miss any payments.
- A good credit score in order to bring down the interest you pay on your loan. Keep in mind that your credit score can be improved within months through measures as simple as paying your bills on time.
- The certainty that your credit score is error-free.
- No other outstanding debt, or at least, as little as possible.
- The security of knowing that you’ve explored the rates and terms of various loans, and have chosen the best option for your requirements.
- All your paperwork in order, stored in a safe place, for protection against future complications.
Have you asked the right questions?
By the way, when it comes to applying for a loan, any question you may have is a ‘right’ question to ask. Don’t worry about seeming stupid, don’t worry about being annoying. Both are preferable to worrying about how you’re going to meet your payments a few months down the line. Here are a list of things you should definitely have clarity on by now:
- The APR (annual percentage rate) which is, in fact, more important than the interest rate – it corresponds to what you’ll be paying every year, as it includes the interest rate and additional fees. A lending agreement with a higher interest rate can sometimes have a lower APR than a lower interest rate with lots of extra fees.
- The long term interest rate – unlike a fixed interest rate, a variable one might increase your payments down the line.
- Early repayment charges, just in case you’d like the option to pay your loan off early should your financial situation improve. Some lending agreements charge a fee for paying off the loan before the end date to make up for losing out on interest payment.
- The closing day price, that is, how much you’ll have to pay on the day you sign. It might include unexpected fees, tucked away in the fine print. If you can’t pay the fees upfront, they might get added to your loan, raising your monthly payments.
- Your payment schedule and the payment method.
- Whether your credit behaviour will be reported to a credit monitoring agency. This is important because if you’re paying your loans on time, having the details reported to an agency will increase your credit score, which will benefit you in the long run.
Give yourself plenty of time before you sign
The day you sign your loan is going to be hectic – you’ll have loads of forms to read and sign, and many of them will be long-winded and baffling. It’s really important to understand everything before you sign it, especially the fine print. Request a copy of the paperwork earlier, so you can review it at your own pace.
Don’t ignore the obvious
You may spend hours combing through the fine print, and miss the fact that your name has been spelled incorrectly somewhere, or that an old billing address has been slipped in accidentally. When it comes to paperwork, errors usually occur in places where we think there will be no error at all, so safeguard yourself against that.
Ask a professional to look through the paperwork as well
This doesn’t mean that you don’t need to, of course. But it’s important to get a lawyer or financial advisor you trust to make sure that everything is in order. They’ll be able to explain the complicated fine print to you, and catch errors you may have missed. A loan will always work for you, provided you take all the measures required to make sure it doesn’t work against you. Give yourself the time to organise yourself, do the necessary research and reading, and consult a third party, and you should be well on your way to an easy repayment process.