Ah, the financial world. Trumps the common man most times of the day than not. And so here’s a post to prevent you from turning into a fobbing clay-brained flap-dragon by taking up loans that might push you into the hell specially reserved for the dead-broke. Therefore, I am pleased to welcome our latest guest author, Catie Keeler, who has written a smart and crisp piece that will educate you in the workings of a bank’s mortgage system and prevent you from falling into financial traps. Continue Catie…
Most of us will have to borrow money at some point. We need loans to buy a house, to purchase a vehicle, and to get those new Jimmy Choo’s we’ve been eyeing this season. (Hmm…)
But whatever money you borrow you must end up paying back, so it’s important to be savvy about the loans you take out. After all, you don’t want to end up losing your car over penalties and fees you racked up buying a $400 pair of shoes.
Here are just a few of the things that smart people do before taking loans (and what you should do too):-
1. Shop Around
Just like you can get a good bargain on shoes, you can get a good bargain on a loan. The interest rate you pay on the loan can significantly increase the amount you pay back over the life of the loan – as much as double or triple the amount you borrowed in some cases.
Sure, you want to go to France this spring, but you also want to be able to go to Italy the next. Don’t let high interest rates keep eating away at your bottom line and limiting your options.
Talk to several lenders to get the best rate you can. Paying even a percentage point less can help you save a lot more money in the long run – helping you to finance that next trip!
2. Know the Fees
The interest isn’t the only extra charge you’ll be paying. Loan origination fees, late fees, and other penalties can quickly add up if you’re not careful.
Make sure you get a full rundown of all the fees you will be charged before locking in your loan. Then make sure you avoid fees by always paying your bill on time.
Would you rather your money went to the bank or to financing your next stereo upgrade in your car? Don’t let small fees cut into your fun money.
3. Understand the Fine Print
Did you know that you could be charged a penalty for paying back some loans early? Or that if you set up a recurring debit charge to pay your monthly bill, you could save half a percentage point?
Loans have all kinds of tricky little rules like these wrapped up in their agreements. Make sure you know all the rules governing your loan. After all, you may win the lottery and decide to pay back your loan early. You certainly don’t want to pay a silly penalty that eats into your winnings – unless you just won the Mega Jackpot, in which case, you can afford not to care.
4. Consider Other Alternatives
The “smartest” people know one thing about taking out loans: They should avoid them if they can.
Why waste money on interest when you could be putting that money to better use for yourself? Before you take out a loan, consider alternatives to financing your purchase like — *gasp* — saving the money.
You can also find ways to budget, raise money, or use lower-cost financing alternatives that offer a better interest rate (such as 0% financing).
Personal loans are a great way to finance big purchases when you need them now – or just “NEED” them now – but can’t afford to buy them outright. However, you need to be smart about your borrowing so you don’t make your financial situation worse.
Make sure you shop around for the best interest rate, that you understand all the fees and terms, and that you consider alternative financing options before you settle on your loan.
Did you follow any of these tips when you took out a loan? Tell us about your experiences in the comments!
About the Author:-
Catie Keeler is the primary researcher and writer for mortgagerates.info. Her most recent accomplishments include graduating from the University of North Carolina in Chapel Hill with a degree in business and communications. Her current focus for the site involves interest rates mortgages and mortgage rates michigan.