A loan is about much more than simply receiving a large sum of money. It is both a product and service that could impact the borrower for the rest of their life. Whether it is a student loan for higher education or a smaller car loan to lower one’s monthly payments, this is one important decision that all potential borrowers should understand fully before taking that final plunge into years of debt.
1. Is This Worth Going Into Debt?
For those with the correct credit or sufficient income, loans can be given out for almost anything. This is why it is important to consider what the loan is being used for and if the purchase is required. There may be alternate options for a loan or the potential borrower could improve their credit before getting a loan.
2. How Will it Affect Spouses and Children
This is an especially important decision for those that are married as a loan will affect the entire household. Even those that do not co-sign with a spouse may be putting their spouse’s finances at risk. Borrowers should also decide how the loan will weigh on their family in the coming years.
3. How Will it Affect One’s Credit
When a loan is taken out and paid back responsibly, it will slowly improve one’s credit. Unfortunately, even a single missed payment may be reported to credit agencies. For those that would like to understand their own credit score, a credit repair service provider should be contacted to discuss one’s options beforehand.
4. What Will Payments Look Like
Many banks and loan institutions make a large amount of revenue from loan repayments, and that is why this is an important product to fully understand. Borrowers should break down exactly how much their payments will be throughout the entirety of the loan period. This can be important for those that may have varying incomes and financial resources in coming years.
5. What Happens When the Loan Cannot be Repaid
Very few things will damper one’s credit as quickly and dramatically as a loan that cannot be paid. Not only will the loan grow and the interest continue to climb, it could affect one’s credit for upwards of 10 years or longer. Loan companies will carry out a few steps for those that fail to make payments ranging from placing the loan in default to selling the loan to a collections company or garnishing the individual’s wages.
