Loans. They enable us to make purchases that we otherwise would not be able to, given our financial condition. Some people take out a loan in order to supplement existing funds, others use loans as payment for something they’d rather not spend their own money on just yet.
Regardless of your reasons for getting a loan, things can get pretty dire if you’re borrowing money for the wrong reasons. And while it’s obviously illegal for loan sharks to have your kneecaps busted, you could instead end up in a far worse condition versus when you didn’t have a debt to pay off.
Don’t get me wrong, loans are indeed useful. But there’s a fine line between proper use and abuse (which will definitely get you in a lot of trouble) So, what exactly are these things you need to consider before applying for a loan?
The allure of instant money can easily blind the unwary individual to the fact that these loans often come with an interest rate. While it may seem like a small price to pay, you should make an effort to at least do the necessary computations to ascertain the practicality of pushing through with the loan. Oftentimes, you may end up paying much more than what you’d normally have to pay. High-interest loans are common and if you aren’t careful, you would be wasting money rather than saving it.
This is directly linked to credit history. Credit damage occurs when a third-party entity causes negative information to reflect on your credit report. This will hurt your borrowing power later when lenders end up asking for a higher down payment in future loans. And if taken to extremes, this could even lead to legal recourse, something you’d rather not have to worry about as you’re likely to be compelled by court to also handle attorney’s fees.
Purpose of the Loan
It’s also important to determine the purpose of the loan because there are loan plans that are designed for specific situations. For example, a car loan is going to have a lower interest rate because the lender may use the car as leverage. In fact, with the advent of technology, you can even apply for title loans online. Determining the purpose of the loan will also help establish the term of the loan.
Term of The Loan
This refers to the length of time that you’re going to have to repay the loan. As a general rule, the length of your term is inversely proportional to the amount that you would be repaying monthly. Though, you should also exercise caution in this because you could end up paying more if you opt to go for a longer term.
One shouldn’t completely rely on loans. In fact, as much as possible, one should first try to come up with the necessary funds before having to borrow money. Deferred payments, credit cards, and pawnbrokers are a few popular alternatives to loans.
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