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
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.