Borrowing money is something many people do at some point in their life. But going into debt for any reason is a serious decision and a major responsibility. If you’re considering taking out a loan, it’s smart to ask yourself these questions.
Do I Understand the Process?
Depending on what type of loan you are after and how much money you are looking to borrow, the lending process can range from really simple to a bit complex. If you are unclear on any part of the lending process, ask for help and guidance. Talk to your parents or a friend you trust who has borrowed money before. Or talk to your lender. MAX’s loan experts are friendly, knowledgeable, and it’s their job to make sure you’re comfortable with your decision.
Am I Eligible for a Loan?
Whether or not a lender will let you borrow the amount you want depends on your income but also your credit history. Make sure you know your FICO credit score (which is different from your credit report and the number most often used by lenders). Ranging from 800 (good) to 300 (bad), your score represents the likelihood that you can and will pay back your debts. A good score means you can borrow money more easily and often, at lower interest rates. A bad score, usually the result of missed payments and/or too much debt, may keep you from having access to any kind of credit, loans or financing.
While you can get a free credit report once a year (see below), to see your FICO credit score, the number most-often used by lenders, you’ll probably have to pay a small fee. Visit myFico.com to learn more.
You should also check credit report, which outlines the information used to determine your credit score. If it contains mistakes and inaccurate data, you could raise your score just by calling the credit bureau or the credit reporting agency and getting the errors corrected. Get your free credit report at annualcreditreport.com.
Am I Getting a Good Deal?
You wouldn’t buy a TV without seeing if you could get a better deal on the same item at another store. Then why not shop around for a loan? It’s always smart to compare:
- Interest rates
- Closing costs
What’s the Best Way to Pay it Back?
The best way to accomplish any goal is to make a detailed plan – and then stick to it. For any loan, you’ll have payments you are required to make, and they should be built into your monthly budget as a necessary expense. But if you can afford it, paying more than you actually have to each month will save you money in the long run because you’ll pay less interest.
If you have more than one loan, look at paying more on the loan with the highest interest first, so you pay it off the fastest and save even more on interest. If you can pay extra on all your loans, then do.
Any time unexpected or excess cash comes your way (things like tax refunds, more disposable income from a raise, etc.), consider applying all or at least part of it to your loan.