Although the clouds of economic recession are still looming over America, the road to recovery has mercifully begun and many people are seeking to take out a loan. Whether they are hoping to fund the purchase of a new home or simply searching for the capital to launch their small business venture, ordinary Americans are flocking to the nation’s banks hoping to secure a loan. While this is certainly an encouraging sign for the country’s financial prospects, there is a wealth of vital information regarding the loan process that many are simply unaware of. The current economic crisis was caused in part by the reckless lending practices of banking institutions who gave loans to unqualified borrowers. We owe it to ourselves as a nation to learn from this catastrophic misstep and educate ourselves on the loan process before borrowing significant sums of money. Below are five of the most important things to consider before taking out a loan.
1.) Motivation: Ask yourself if the purchase or expenditure you are borrowing money to fund is truly necessary. While you may think your new restaurant concept is perfect and must be taken to market immediately, chances are it will still be successful in six months time. That upgrade to a new SUV for your growing family may be essential, but if you can get by with the old station wagon for a while longer it is best to wait it out. Taking out a loan to make an impulse buy is one of the riskiest financial decisions you can make.
2.) Affordability: Before taking out any type of loan you should first determine whether or not you can realistically pay it back. Loans are a tempting notion and many would be borrowers succumb to the allure of seemingly “free” money. While the short term enjoyment may be fun, eventually the burden of continuous, ever-present debt becomes overwhelming. If you suspect that you may not be able to repay your potential loan, be responsible and decline the offer.
3.) Expediency: Echoing the sentiment above, you should be confident in your ability to repay a loan quickly before borrowing money. Certain loans, such as payday loans or auto title loans contain escalating interest rates which punish borrowers who fail to make timely payments. Avoid this issue altogether by only exploring loans which you can repay in a reasonable amount of time.
4.) Alternatives: Before assuming the responsibility of a bank loan you should be sure that you have explored all available options. If there is another source of money available to you, from family or friends for instance, try to borrow from them before signing any contracts.
5.) Emergency: Always plan for the worst when it comes to loans. Assume that you may lose your job or experience a health emergency and then ask yourself if you still want to borrow money; if the answer is still “yes” after considering the worst case scenario then a loan may be your best bet after all.
