Thinking of taking on some debt to improve your current financial situation? Not sure what you should look out for in terms of interest rates, repayment terms, fees, and reputable providers? What happens if you fail to make the repayments on time? Is there any option to cut back on the amount you must pay? Will this lead to a bad credit score? These are all valid questions, and you should know the answers before signing on the dotted line. On that note, the following are some things you should know before taking on debt.
Calculate the Amount You Realistically Need
Don’t underestimate it or you’re going to find yourself going back for more, and the lender may not be keen to cooperate a second time. If you’re starting a business, a bank will want to see a business plan, and if yours looked convincing but was a pie in the sky and this has been exposed in the first months of trading, they won’t want to throw good money after bad. On the other hand, if you borrow considerably more than you need, you’re saddling yourself with more debt than you had to, and that must be paid off eventually. If it’s student loan, you will need to factor in tuition fees plus rent and daily living expenses. Again, if you get your calculations wrong, you’re going to end up in front of the manager’s desk again and hoping they’re a compassionate type that will work with you to improve the situation.
Choose Your Lender Carefully
Someone applying for a loan for the first time may just be grateful that someone is willing to consider lending them anything at all. But that is how such people make a living: they must speculate to accumulate, and that means taking a gamble on something that may or may not work out. Lenders want to lend to people with great ideas and solid business plans, so they can get their money back with interest and without hassle, and if they can establish a good relationship with a borrower, it could turn into a lifelong series of loans including a mortgage. In that respect, even as you’re asking them for help, you are potentially offering them the chance of a steady income.
Refinancing
Your circumstances can change and you may find it difficult to make repayments. It’s not an ideal scenario to be in but there is light at the end of the tunnel. Student loan consolidation and refinancing both involve taking out a new loan to pay off your existing loans. Doing so can help students enjoy better interest rates, more attractive repayment terms, and lower fees. It’s important to review a guide on student loan refinancing and consolidation to really know which option is best for you.
Concentrate on the Terms and Conditions
There are definite, black and white details and there are negotiables, so don’t be afraid to question what you’re initially offered. In fact, a bank manager may be impressed by your determination to get the best deal, because if you do it with them, you’re likely to do it in other areas of your life, and your earning potential will seem greater. The term of the loan, how quickly you must pay it back, can often be negotiated, and although a longer term can mean lower monthly payments, it’ll be on your back for longer and you could end up paying considerably more interest.
The interest rate will probably be non-negotiable, although feel free to ask, but you need to know if it will remain at that rate for the entire term of the loan or if is fixed. With a fixed rate, you know how much you’re looking at every month. Not fixed means it can suddenly rise and upset your balance of payments. Also, find out about penalty clauses: if you find yourself in a position to pay it off earlier, are they going to charge you extra for the privilege?
