You should never sign a document without reading it. That especially applies to a financial paper that commitments you to repaying a sum over a period in the future. In terms of loans, that may be anything up to 30 years though with personal or auto loans, it is more likely three to five years.
Inevitably, you will be nervous when you sign up but as long as you have read and fully understood the detail, terms and conditions, involved, you should be able to sleep easy at night. So what are the questions that you need to ask yourself and others before you put pen to paper?
Is the Sum Appropriate for your Needs?
There are times when a lender will offer more than you actually need. It means they have the potential to make more profit and it is tempting to take extra money. However, if you have no positive need for the extra and might be likely to waste it, think long and hard before you accept. You must remember the extra cost you are taking on by accepting that money.
When borrowers need cash now and willing to take personal loans , perhaps to clear a credit card balance which is incurring a higher rate of interest than the loan is charging, you should do all the calculations to see what the impact will be on your finances. If you have just been merely paying the minimum each month, you will have a core balance at the end of the term of a personal loan which you can use to pay off that balance in full. As long as you resist the temptation to build up a balance in the future, sign up.
Affordability
This is central to every loan that you apply for. You may be approved by a lender but ultimately it is you who must decide whether you can afford the repayments for the whole term of the loan. You must have an accurate budget in place to be able to decide that.
You should look at your commitments each month and ensure that you can meet all your bills once you have signed up for this additional money. Where you are taking a loan to get rid of other debt, you need to insert the new monthly payment but you can take out the other figures you are currently paying.
Fees throughout the Term
There are costs involved with any loan, always at the beginning and sometimes even at the end. You need to understand that and include everything when you consider taking the money.
In terms of a mortgage, make sure you remember about possible property taxes and underwriting fees. You may roll this money into the mortgage itself but that will involve taking extra money and then paying interest on the increased sum. You should also remember insurance so discussing the whole thing in detail before signing will give you a clear picture.
Annual Cost
It is easy for your eye to go to the interest rate you are being offered. However, there is more to it than that and you need to understand what the total repayments are. If you know the annual figure then it will be easier for you to calculate the impact it will have on your finances.
Conclusion
If you are desperate for money, it is tempting to sign up out of relief that you can get money without thinking about the consequences. The future does eventually become the present and there will be no avoiding the stress it brings if you sign up to something that is not suitable. You must be certain that you have examined all your alternatives for the money you need before you sign anything.
If possible, you should take advice on the course of action you are contemplating just to get an objective view of your intentions. You will have to live with your decisions.
James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.