Three Reasons You Need to Do Your Homework before Getting a Loan
Borrowing money is serious business; take it lightly at your own risk. Whether you’re looking for a mortgage to buy your new home, a small business loan to get your new company off the ground, or you need financing for a new car, getting a loan is complicated and fraught with potential mistakes. Don’t be that person who borrows money on a whim, takes a loan with the first lender who says yes, and then regrets it later. You need to do your homework before you take this big financial step, and here’s why.
- Careful research saves you money.
This is the best possible reason to spend time on research, right? Yes, it may be tedious, and certainly boring for most of us to read up on lending and to comb through lenders and loan options, but it’s time that will actually pay you in savings. Borrowed money isn’t free money, and when you don’t bother to look into details, you run the risk of paying more than you need to. You might find that several lenders offer you loans with high interest rates, but just one is willing to give you a lower rate. That extra research pays off in the end.
Here’s another example: imagine you have no idea what your credit score is. Don’t feel bad if you don’t; you’re hardly the only one who likes to remain ignorant about this crucial piece of personal financial information. It may be that your credit score is less than perfect, which means that when you apply for loans you’re not going to be offered great rates. If you know your score is low, you can make a crucial choice about whether you can hold off on a loan while you improve it. If you’re able to wait and do the work, you can save a ton of money when you borrow with a better credit rating.
- You have options you may not have known about.
Another important reason to do your homework is to find out what your options are. If you think one loan is like every other loan, you are greatly mistaken. There are all kinds of loans and several different options to go with each one. To get the loan that best meets your needs, you have to know what your options are. If you are looking for a home loan, for instance, you can choose between fixed rate, variable rate, and adjustable rate mortgages. Have no idea what this means? You need to find out before you commit to borrowing money.
For something that seems like it should be straightforward, there are a lot of choices that can make a real difference when it comes to how much you pay for a loan in total, how long it takes you to repay a loan, and how much you pay back every month. The type of loan you choose can have a far-reaching impact on your future finances and everything that is impacted by your finances, from your job to your marriage to your kids’ college funds.
- You may have greatly misjudged how much you should be borrowing.
Do you really know how much money you need to borrow for your business, for your home mortgage, or for your new car? You may think you know, but if you haven’t done any research, you could be wrong. For instance, did you know that experts recommend that when you borrow for college you take out no more than you expect to make in your first year of full-time employment?
Big loans are especially risky to take on without doing research. For a mortgage, for instance, you need to do some careful research to decide how much you can afford to spend on a home. It’s more than just thinking about how much money you earn and the listing price for a house. You have to consider everything you’ll be paying for when you buy a house: a down payment, the principal on the mortgage, the interest, insurance, and taxes. In addition to your income you need to think about how stable your job is, what other debt you have, whether or not you will need to change your lifestyle to afford the mortgage, and other factors.
Getting a loan is not a simple process, and it involves a lot of money and debt, so why wouldn’t you do your homework? Finances may not be your favorite thing, but if you want to borrow money wisely, avoid having too much debt, save money, and get the kind of loan and amount that works best for you, take the time to do the research.