A loan is a convenient financial instrument for those who know how to count well. If you need to make a large purchase and there is no way to wait until you accumulate the required amount, you can make it immediately and return the debt gradually. In order for this scheme to work successfully, several conditions must be met. How to take out a loan correctly? Read our article.
Accurate calculation and smart approach
The easiest way to lose money is to make an “emotional purchase”. In marketing, this method encourages visitors to purchase more products.
In the banking sector, tempting offers “lowest percentage”, “discount for the first 100 customers”, as well as other marketing moves are the way to influence the emotions of the client. The decision when you can take out a loan should be made by you, and not by the advertising department of the bank.
Taking out a loan just because you urgently wanted to buy something is not worth it. You need to prepare in advance for planning large acquisitions. Evaluate the importance and urgency of spending, the ability to repay the loan without getting into even bigger debts. The old advice – to postpone the decision in the morning – works flawlessly.
Urgent needs – will a loan help?
If tomorrow you still want to buy this thing, then carefully recalculate your finances again and think over the algorithm of actions in case of force majeure. Lenders often offer “emergency loans”. Such a proposal assumes a simplified design scheme and only a few documents.
What do you need to know before taking out a loan?
- If you plan to buy something, then it is more profitable to find offers for installment loans from the seller. Banks consider loans for urgent needs a risky investment, so they charge higher interest rates.
- Assess your risks. Due to various circumstances, you may lose your permanent income. It is impossible to predict illness, job loss, economic crisis. You will have to return the money taken in any case.
Taking risks for things that don’t matter is not worth it.
Loan payment amount
Before taking out a loan, calculate how much you are already paying to the bank. For example, your income is $1,000 and your mortgage payment is $500. You cannot make another monthly payment on a new loan. But if your income is sufficint and you are not burdened by other debt obligations,you contact several banks, ask to draw up approximate schedules taking into account the required amount and the size of the monthly payment. Then you choose the most convenient one.
Take advantage of the competition in banking
Traditional advice on obtaining a loan suggests evaluating the loan products of several banks. Many banks offer profitable programs for regular customers, but this may turn out to be nothing more than a publicity stunt. The situation in the financial market changes daily. Often, new clients can find a loan at a lower interest rate than is valid under your old overdraft agreement.
Experts believe that the best solution is to compare the profitability of loans in at least four banks. Request a payment schedule to estimate the full cost of the loan. Check the requirements for borrowers and the list of required documents. Then make a decision.
When issuing a loan, the bank risks its own money. Therefore, when setting out to draw up a contract in the lender’s office, try to make a good impression on the bank employee. An unkempt appearance can become a trifle that will lead to rejection. Be confident, mention that you are currently considering offers from several banks.
Pay attention to the contract. Check the following details:
- total loan cost;
- interest and commissions;
- possibility of early repayment;
- payment methods.
A bank employee will offer a more favorable loan for an experienced and knowledgeable client. A first-time borrower may expect to get a more expensive loan offer. Knowing the intricacies of the contract will help you understand how to safely take out a loan.
Calculate the total overpayment
Taking out a loan without knowing the size of the full overpayment means throwing money away. User interest is not the only loan fee. The contract may include commissions for issuance, cash withdrawal, transfer, insurance. All this can significantly increase the total amount by the time the loan is fully repaid.
Tips on how to properly take out a bank loan include a mandatory step – drawing up an estimated payment schedule. Only this document will show the true overpayment amount. You just need to add up all payments and subtract from them the size of the loan.
Not all banks have branches in every US city. Payments through a partner bank, terminal, Internet are carried out with a commission. These expenses must be added to the overpayment amount. When signing the contract, check the payment schedule that you received in advance and the real one. If there is a discrepancy, you can refuse a more expensive loan.
Avoid attracting guarantors
Borrowing friends and family is the best way to ruin a relationship with them. Banks insist on the inclusion of guarantors in the contract because this reduces the risk of default. This can be a prerequisite or voluntary. Before giving any contacts, ask a person if he/she agrees to this.
Often the presence of guarantors allows you to slightly reduce the interest rate. But knowing how to take out a bank loan, you can consider other offers without such strict conditions. It is better to collect a lot of documents than risk the loss of a friend. In case of non-payment, the debt collection department will call all the phones specified in the contract. The annoying calls start after the first delay.
The surety risks not only spoiled mood but also his/her own personal funds. If you cannot pay the loan, your friend or loved one will have to do it. This makes it easy to make enemies. It is impossible to get rid of the surety. Such debt can be removed only by the bankruptcy procedure.
Here’s everything you need to know about loans in order to use your money correctly. By following these rules, you can avoid surprises and falling into a hole in debt. All of them are simple and understandable, so even those who have never used borrowed funds can use our advice.