A loan is simply the money you borrow for whatever personal need you might have.
For example:
- You get a $30,000 loan from a finance company to buy a car.
- You need to pay off your high interest credit cards. You approach a bank and borrow the money from them (also called a consolidation loan).
- Your friend lends you $1,200 so you can pay your first and last months rent for your new apartment.
These are just some basic examples. In reality, loans come in many different shapes and sizes. No matter what type of loan you are thinking of getting, remember to keep the following in mind:
Thinks Twice - Do you want something that bad that you are willing to get yourself into debt?
Budget - How much can you pay each month? Prepare a monthly budget to see how much you can pay. Then think about how long you are willing to make the payments.
Credit Rating – How good Is your credit rating. Do you make timely payments? Have you ever failed to repay any amount you owed? Have any of your checks bounced? A bad credit rating can make it very hard to borrow money without a co-signor or security (see below).
Shop around – There is more than one lender out there. Just like with any business, lenders compete to get customers. If you don’t get approved with one then try another. Or if you think that the interest rate is too high then look for someone who will offer a better one. Remember to negotiate because everything in life is negotiable!
Before you go out looking for a loan here is the basic terminology you should be familiar with:
Repayment Terms – How big will the payments be and how often do you have to make them. Usually you will have to make payments each month on the same day of each month. Or it could be every two weeks. It all depends on the terms.
Interest rate – this is the amount that your lender will be charging you for letting you use his money. It is usually a percentage of the amount borrowed per annum (annual basis).
Security – you may be required to pledge things you own as collateral for your loan. In case you are unable to make monthly payments, your lender can go after the things you pledged and sell them to get their money back. Collateral is usually required when the loan is large, or the lender thinks you may not be able to repay the money.
Guarantor/co-signer – is a person who agrees to repay your debt if you are unable to. Just like Security, Guarantors are only required when the loan is very large or in situations where the lender thinks you may not be able to make payments.
Posted in Loans
