Are you considering taking out a loan?

Roughly 83 million people have taken out a loan in the last year. Whether that be for a car, to pay other bills, or to keep dry on a rainy day, people are borrowing money from either online lenders or traditional banks.

Taking out a loan is a big financial decision that can have quite the impact down the road. Because of this, there are a few things you should know first. Check out three things you need to know before getting a loan.

1. Your Credit Score and History

First and foremost, you need to know your credit score. Having a good credit score can get you lower interest rates and lower payments. When you know your credit score and credit history, you will have a better idea of how much money you can ask for when you want to take out a loan.

2. Terms of the Loan

You plan on taking out a bank loan. You need to consider the terms of the loan. First, how long will you have to pay off the loan? The longer the length of the loan, the smaller the monthly repayment plan is. At first, that might sound good, but in reality, it could be the worst choice.

If the payments are spread out over a longer period of time, you may end up paying more in interest. Ideally, you want a loan with a smaller interest rate. The interest rate is the amount of money that the lender charges on top of what you asked for.

You also need to look at the APR when you take out loans. APR stands for annual percentage rate, so this refers to the percentage you’ll pay for a long within a year’s time. APR includes the interest rates and any extras like transaction fees and penalties.

Knowing all the fees associated with the loan is vital.

3. How Much Do You Really Need?

When you’re taking out a loan, you need to stop and think “how much do I really need?”. When you decide on that amount, you also need to ask yourself if you can realistically afford to pay this amount back in a timely manner.

It can be tempting when you take a loan, to get more than you need, but don’t do it. This can get you in real trouble if you can’t pay back the loan. Penalties can add up very quickly.

Need Advice for Taking out a Loan?

Taking out a loan isn’t like renting a movie. You need to be well educated on all your options so you can decide what’s best for you and your given situation. Sometimes this may mean not taking out the loan at all or waiting until you’re in a better financial situation.

It’s important to get the advice of professionals when you’re making this kind of decision. We are here to help. If you’re needing advice or tips on taking out a loan, contact us today.