Take Out a Loan the Right Way

At one time or another, most people will find themselves a little short on cash. If this happens to you, hopefully you will have some savings you can dip into. If not, though, your next best option might be to take out a loan. While it’s always best to avoid taking out a loan in the first place, if it absolutely can’t be helped, you want to at least make sure you go about it the right way.

Know What You’re Getting Into

To begin with, don’t ever agree to loan terms without reading the fine print. You should know exactly what the interest rates on the loan are, how long you have to pay it back and in what increments, and what happens if you miss a payment or pay the loan off in more or less time than agreed upon. Be

aware that lending companies sometimes use tricky language or hard-to-understand jargon in the loan contract, so it never hurts to have a financial advisor look over the loan terms and provide advice before you agree to them.

Don’t Make an Impulse Purchase

The only reason that you should take out a loan is because you are in need of money. You might need that money to survive, or you might need that money to open a business or carry out some other well thought-out plan. The key words there, however, are “survive” and “well thought-out.” If you need a loan to get yourself or your family through a rough patch, that’s understandable. And, really, any loan that you’ve spent a lot of time thinking about and planning for is also acceptable. If, however, you’re getting a loan to buy one particular thing that you’ve suddenly discovered and just have to have or because you want to take a dream vacation, that’s probably not the smartest choice. Never use loans- which you will be paying off for quite some time- as a way to satisfy an impulsive want or desire.

Be Honest

Finally, always be honest when filling out the loan paperwork. You might be tempted to bump your income up a little bit or to leave out a few debts and financial responsibilities. In truth, though, the questions being asked on the loan application are there to protect not just the lending institution, but you as well. If you’re lying, you might be found out, which could end in legal trouble. But, even if you don’t get caught that way, you’ll probably end up over your head with the loan, which could lead to debt and long-term financial problems. When it comes to taking out a loan, honesty is always the best policy.

Hopefully, you will never have to take out a loan, but if the time does come, keep these tips in mind and be sure to talk over the long-term effects of the loan with your financial  planning advisor.

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