5 Things to Consider Before Getting a Loan
Posted By The Pritchard Law Firm || 05/24/2016
Whether you are looking to start a business, put your kids through college, or purchase your first home, if you are like most Americans, chances are you probably do not have all the cash you will need to cover your costs. In situations like this, you will need to take out a loan to help you accomplish your goals. Taking on large amounts debt can be a major responsibility, as you are promising to pay back the principal amount plus interest over a certain period of time. Before you sign your name on a loan agreement, it is important you consider the following.
1. Check your credit score: Before you even apply for a loan, consider your credit history. Your credit score will have an impact on your ability to get credit and how much it will cost you. If your credit score is low, try to raise it before applying for a loan by paying off debts, correcting inaccurate information on your credit report, and making payments on time.
2. Secured or unsecured: There are two major categories of loans: secured and unsecured. Secured loans are backed by some form of collateral that the lender may seize in the event of the borrower’s default, such as a person’s home or vehicle. This added security usually makes secured loans cheaper in the long run, though borrowers stand to lose whatever they put up as collateral. Conversely, unsecured loans are not backed by any sort of collateral, meaning that the lender does not have any guarantee of repayment. Because of this risk, unsecured loans generally have higher interest rates. If you have good credit and you are sure you can pay off the loan in time, a secured loan may be the more attractive option.
3. Consider a credit card: A loan may not be your best option if you have good credit. If your credit score is excellent, you may be able to apply for a credit card with zero percent interest for the first year or even longer. Likewise, interest rates on personal loans may be higher than that of some credit cards. It is important you consider all options before deciding which form of credit you will choose.
4. Read the fine print: It is important you check to see if the prospective loan has any limitations or caveats, such as how the money can be spent, whether or not the loan can be repaid quicker than the stated time period without penalty, and how long it will take for you to gain access to the funds. Likewise, make sure you know what could happen in the event that you should pay late or default on your loan.
5. Avoid applying for too many loans: Whenever you apply for a loan, the prospective lender will check your credit history. This inquiry can lower your credit score by a few points. The more places you apply for loans, the more times your credit score will take a hit, thereby affecting your ability to qualify for the best interest rates. To avoid this problem, ask lenders about their rates before submitting an application and only apply for the best ones.
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