Whatever amount of money it is you’re asking for, you are basically saying that you don’t have the money to get what it is that you want right now. So you are asking someone to trust you enough to know that you will pay them back if they front you the money right now. In this world of instant approval and spontaneous credit, this covenant has been somewhat forgotten. Of all the financial advice people can take, consider these 10 loan-related things.
Interest Rate: One thing people never pay enough attention to is the “interest rate.” This is what’s printed in really small terms along the bottom of your credit application. This interest rate is something which may be fixed or variable and may or may not come with a special payback period where your interest rate can be a lot lower.
Grace Period: This is the time in which you can pay a lot less. Maybe it’s 60 days, 90 days, 12 months or something else. If you can squeeze out a favorable grace period in your loan terms which you can honor than you can get a far better deal than if you begin accruing interest day 1.
Payback Terms: What are the payback terms? Is this loan a fixed amount that you’re paying back, say over 60 or 72 months? That’s a long time; are you still going to even have this thing you’re buying with this loan in six years? Know the terms and know if there is any benefit for early pay-off.
Real Costs: This goes along with the terms; what is the actual amount you are paying for this thing. The closest thing to consider may be a car you’re paying $250 a month for on an 84 month loan. If you have bad credit they could try to get you to pay that much. But then, even if the “sticker price” of the car is $12,495, at this rate you are paying $21,000! That’s almost double!
Urgency: What is the urgency on your end for this purchase? How badly do you need this thing? Can it wait until you have saved the money without the loan?
Alternatives: Another piece of financial advice so few of us take a bite off are possible alternatives. Is there any way you can avoid taking out this loan and instead ask your rich brother or uncle for a private advance? Using alternative resources to for your loans can be much better than using commercial ones.
Ability: How able are you to take on this loan right now? Are you using this loan to delay some greater inevitability? If you don’t feel comfortable handling a loan in the near term and you’re not sure how you’re going to pay this amount back then you should seek other methods.
Overall Picture: What is this loan going to do to your overall monetary picture? Are you going to be coming back for financial advice as soon as you realize that this loan you took out was the wrong move? Even if it’s for debt consolidation; is this loan the best idea? Being trapped in a vortex of financial nonsense is far less preferable to getting the best financial advice on the front side and moving forward.
Versus: What would happen if you didn’t get this loan? Would the outcome be much worse? How much worse?
Spirit: What does this loan mean for your self-worth? How will taking out this loan impact your impression of yourself? It may sound fruity but it’s worth considering.
Jeffrey Sterner writes and blogs about personal financial well-being and issues that influence it for Debt.org, America’s Debt Help Organization.