What to Know Before Taking Out a Loan

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business-1037741_1280Taking out a loan shouldn’t be your first choice when you need extra money to cover an expense, but depending on your circumstances, it may be a valid option. Loans can be a short-term fix but may end up a being long-term headache, so you should be aware of what you’re getting into before you commit to taking out a loan or if you have bad credit and you need to take out a loan.

Here are a few things you should know before take out a loan for an expense.

Your Credit Score

It may sound like a no brainer, but before applying for a personal loan, check your credit score ahead of time so you have a good idea of where you stand. If your score is poor, you maybe just wasting your time applying because the lender may reject you. If you have a reasonable score, you’re not safe either because an average score can a higher interest rate and not the one that was advertised to you.

Also, you’ll need to consider how your credit score will be affected by applying for different types of loans. It’s best to ask questions ahead of time after you’ve reviewed you’re credit score and report so you’ll have a good idea if a lender will accept your application for a loan or not.

Determine How Much you Really Need

Don’t apply for an amount of money that you really don’t need. Some lenders will tempt you by offering you more or you may think you need a little extra money just in case. This is a common trap that could slow down your repayment progress and increase the amount of interest you owe.

While keeping that in mind also don’t ask for to less either. Determine exactly what you need to get by and apply for that amount while considering how your interest rate and term will affect your ability to pay back the loan.

Do you Have a Steady Income to Pay the Loan Back?

A factor that you should really be focused on is how quickly you can pay the loan back. If you don’t pay your loan back or have late payments, your credit can take a big hit. Make sure that you have a plan of attack when it comes to paying back the loan. If you mess up with this loan it lowers the chances of you getting a second chance at another loan should you need it in the future.

While lenders like to know that you are earning a steady income each month before offering you a loan, only you know what your regular expenses are like and how much you can truly afford to pay back so be honest with yourself.

Are All of Your Interest Rate Questions Answered?

Don’t get stuck with a high interest rate that you know just is not fair or reasonable. Check to see if your rate is fixed or variable and eep this in mind while making sure you ask about the rates if you are unsure of the agreement. There is also a section to read over about late fees which could be hurtful to your checkbook as well and some loans can even raise their interest rate if you start becoming late so stay on track and ask questions if you have them.

Have you had to take out a loan, did any of these questions cross your mind before applying?

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