Questions to Ask Yourself Before Taking a Loan
If you’re like most Americans, you don’t always have the capital needed for a major purchase. From a young adult buying their first car, to a student funding their education and a family looking for their first home, more and more people are taking out loans. Assuming debt of any size is a big responsibility, and one that isn’t always thought through. The borrower needs to pay back money with interest during a specified time frame. If this does not happen, the consequences are significant and far-reaching. Below are some points to consider before taking out a loan of any size or type.
Before taking out a car loan, think about the other expenses involved in vehicle ownership and how that will affect your ability to meet a monthly payment that may seem low at first. Insurance, regular maintenance and fuel costs are all costs involved in vehicle ownership that impact the budget of any car owner. When considering the loan, ask the following questions: How fair is the interest rate? What fees (tax, tags, title, etc.) are associated with closing the loan? Is there a prepayment penalty? Are all the fees associated with the loan clearly explained?
Mortgages and, to an extent, home equity loans come with similar sets of concerns. The borrower should always ask: Is the interest tax-deductible? How stable is the job market? How much do savings factor into this deal? What is the ideal length of time to commit to regular payments? For a home equity loan, the borrower should also consider their ability to make timely mortgage and home equity loan payments each month. With mortgages, borrowers should consider the amount of money they are able to put down and how the cost of MIP (if applicable) will impact monthly payments.
Student loans require a special kind of forethought. Subsidized loans do not accrue interest during certain periods, while unsubsidized loans do. Before taking out a student loan, borrowers should consider the earning potential of their prospective fields of study and what impact that will have on ability to meet repayment obligations. With all loans, borrowers should ask themselves: I s his purchase absolutely necessary at this point in time? How affordable are the payments? Is there a less expensive way to borrow the money? Is it possible to pay cash instead? How fast can the debt be paid? What happens if a payment is missed?