Taking out a loan is often an essential part of moving forward in life. Perhaps you need a mortgage to buy a house. Maybe you need a loan to fund the purchase of a new car. Or perhaps you’re just struggling to make ends meet this month. There are all sorts of reasons why we’ll borrow money from the bank.
However, there are certain questions you should always ask yourself before you sign on the dotted line. We asked the experts at Texas VA Loans for some advice on getting the right deal.
- How much do you really need?
We all have a tendency to underestimate how much we need to borrow. We go to the bank with a smaller figure thinking it will cover your costs. Perhaps it’s a business loan, and you need some startup money, for example. You choose a lower number because you think you’re more likely to get it. However, if you then approach the bank again six months later because you’ve run out of cash, this looks bad. Always be upfront and realistic about how much you need.
- Are you likely to get approved?
Having said that, always ensure you operate within the boundaries of approval. If you’re turned down for a loan, it leaves a small black mark on your credit score. That mark will harm any chances of borrowing in the future. The same thing happens if you’re turned down for a credit card. Our advice? Speak to the bank about their minimum requirements before you ask for the loan. They’ll often tell you their credit score requirements and other qualifying factors.
- Can you pay it back?
Of course, this is the most crucial question of all. Never, ever, take out a loan that puts pressure on your finances. If you default on your repayments, you’ll find it very difficult to obtain a loan in the future. You may even face asset confiscation based on your collateral. Before you take out any loan, ensure you have the cash flow to make the regular payments necessary. If it’s a business loan, take a long look at your books first.
- What is your collateral?
In many cases, a loan is secured against something of value. For example, when you take out a mortgage, the loan is secured against your home. If you fail to keep up with the repayments, the creditor will seize the house. The same applies to a car if you take out a loan for a new vehicle. Understand the collateral that is tied to the loan, and assess the risk of losing it.
- Are there any alternatives?
In most cases, it’s best to pay upfront for the purchase. Ask yourself if there are any alternatives to taking out a loan in this particular circumstance. It’s best not to put pressure on your finances unless absolutely necessary. Only you can make this decision, but make the wise choice.
As you can see, there are all sorts of factors involved when securing a loan. Do you due diligence, and never take on more money than you can afford to pay back.