There are many reasons why people need a loan at one time or the other. It could be for personal or for business needs. Whichever it is, there are a few important questions you need to ask before taking out a loan.
How much money do you really need?
This is probably the first question you need to ask. Finding out how much money you need will ultimately lead to you finding out if your perceived need for a loan is real.
What to do: Revisit your past budget and use the information to create an actual cash flow projection. Before you finally decide to take out that loan, make sure you have mapped out exactly how much you need and what it is going to be used for to avoid borrowing too much.
What are the chances that you will qualify for the loan?
Getting rejected for a loan application has its own repercussions. It will affect your credit in the same way that a declined personal credit card will, making it even more difficult to borrow in the future. It is a vicious circle. To avoid hurting your credit and your future self, you need to examine your finances, and then approach lending institutions to find out their specific requirements before you start your application. Find out about minimum credit score required for a loan, cash flow needed, the value of the asset to be used as collateral, as well as any other factors that could affect your application.
Is the loan best suited to your needs?
Different lending institution have various loan products which are available to different borrowers based on their needs. You need to be aware of the different products to be better able to choose what would best suit your needs. Don’t be afraid to ask your bank about the advantages of the loan and the limitations. Also ask about other loan options before you finally take out a loan.
What will the loan cost you?
Yes, a loan is going to cost you, maybe not immediately. You need to find out about any fees you may be charged upfront, as well as any other ongoing fees that you will get as a result of the loan. You need to find out about a good faith estimate for the loan, any prepayment penalties, and mortgage insurance for the loan.
What about rate, term and payment plans?
This is a basic feature of any loan and should also be an important deciding factor for you. You need to ask about the term of the loan, the interest rate, and whether or not the interest rate is fixed or adjustable. Ask about the monthly payment rates and any other things related to the repayment that you need to know.
What happens to the loan repayment if you die?
While it may feel slightly unpleasant to ask such a question, you need to know what will happen to the loan in the unfortunate event of your demise. If you have a robust life insurance policy, some lenders may come after that and your family suffers as a result. Find out the lender’s policy in the event of your demise so you will know how best to protect your loved ones if the unfortunate happens.
Taking out a loan whether for personal or for business reasons should be a carefully thought out process. Don’t hesitate to ask your lenders for any clarification that you might need.