Getting a bank loan requires a thorough research and a clear understanding the pros and cons of the terms. You should know exactly what aspect of the loan Agreement plays in your favor and what terms could eventually cost you extra money. Here is the brief list of the most useful and helpful facts about borrowing money. Make notes and pick your future lender wisely.
1. Mortgage is the type of bank loan with the lowest interest rate, while payday loans are known for the highest interest rates offered to individuals. The longer the terms of the loan and the bigger the sum of borrowed money, the lower the interest rate. Secured loans are the safest for a bank, thus a borrower always gets the best rates in exchange for valuable collateral.
2. Check the interest rate right before signing an Agreement with the bank. If there were several days between your interest rate request (the day of your first visit to the bank) and the day of signing an Agreement, there is a possibility that interest rate has already changed. The interest rate depends on various factors, so make sure you get what you expect.
3. Not the interest rate itself defines the best terms. The more important factors are the flexibility of repayment terms and whether your interest rate is fixed or variable. Fixed interest rate means the interest you pay to a bank is the same during the loan’s entire lifetime. It gives the feeling of stability. On the other hand, the variable interest rate can be increased or decreased, depending on the economic environment. Obviously, if the rate will be lowered your loan becomes cheaper and vice versa.
4.If you are after the type of the loan that requires collateral and you don’t have any assets to secure your loan, you may find a cosigner who does have a collateral. Usually, cosigners are family members, spouses or closest friends. Once the Agreement is signed, your co-signer has financial liabilities towards the bank just like as you do. In a case you’ll fail to repay the loan, the co-signer is obliged to make payments or to give up their collateral.
5. If you have many different loans in different banks and all these liabilities drain you financially and psychologically, you can get a debt consolidation loan. That loan consolidates all your loans into one loan which you’ll have to repay to the one lender. Not only that makes repayment easier but also you’ll get significantly better repayment terms and more beneficial (lower) interest rate.
6. In order to get a secured loan, you will be required to insure your collateral. It is a simple procedure that could be done by any Insurance company you prefer. An insurance police protects the collateral from the damage (and therefore from the loss of its value) so the bank takes no risks by granting you a secured loan. Let’s say if you use your car or a house or anything else as collateral you will also have no rights to sell it or keep it without insurance.
7. If you are going to get a mortgage loan or any other long-term large loans you have to be confident in your never draining source of income. There is a special type of insurance which protects your income in a case you are unable to earn money for the certain period of time (while you will still have to make loan repayments). By insuring your income you get yourself stability and a peace of mind.
8. If you still have a debt burden that has risen from your student’s loan, you should know there are several ways to get rid of the loan. Still, keep in mind that there is no way to get rid of debts like taxes, alimonies, child support payments, and some other types.
9. It’s a fact that the incredible number of bank loans are granted to people who need money to cover the previously taken loan. This is a financial trap millions of people all over the world live in. Many end up by filing for bankruptcy that brings immediate debt relief or debt restructuring. It is also a fact that getting many loans drags lots of people into the financial catastrophe.
10. This is the fact that online lenders offer considerably more beneficial terms, comparing to banks. This explains why services of online lenders are so popular, especially when it comes to personal loans. Still, like it was mentioned above, the interest rate is not everything. Online lenders are often not trustworthy and unable to provide decent customer support to their borrowers.
11. Not many are aware that if they receive student loan forgiveness, they can face another financial trouble. The thing is that according to the current law, the amount of the loan discharged is considered an income the person receives from the government. Thus, a person will receive a tax bill he will have to pay in a defined timeframe.
12. It is a myth that it is impossible to get a bank loan with bad credit score. Whatever low your score and bad your history are, you still may apply for a bank loan with relatively decent terms.
13. There is a type of a bank loan most people have not even heard of. Did you know you can get a loan against securities? Then means if you have any equities (stocks, bonds or other liquid vehicles traded on the market) you can use it as collateral for a loan. You will not even need to withdraw your equities from your investment portfolio, but you will have to provide the bank with the certificate of ownership.
14. It’s a well-known fact that short term loans are very easy to get while getting a long-term loan will require you to match several strict criteria (your income, liabilities, etc.). You should always keep in mind: the longer the term of the loan the lower the interest rate and the cheaper your loan is. Short-term loans (especially unsecured ones) are most expensive.
15. When choosing a type of a Student’s loan (there are several types and several organizations that can grant it), pick the loan where your interest rate payments are tax-deductible. Pick wisely!