What to ask before you take out a loan

A loan is not to be taken lightly. The financial information about how you pay your loan and how much you owe will be important parts of your credit history and can seriously affect your financial future. Here are some questions you should ask your lender before you commit to a loan.

What is the base interest rate and APR? How will it change over the term of the loan? This depends on whether you get a fixed-rate loan or adjustable-rate loan. A fixed-rate loan has a constant interest rate for the life of the loan, but an adjustable-rate loan has an interest rate that changes periodically according to general interest rates. If it is a loan with an adjustable rate, find out whether there is a cap on the interest rate and, if so, what it is.

Is this the best rate you can offer? Ask your lender if you qualify for their best rate for that month, day or week. If not, make sure they are offering you the best rate for which you qualify. That way you can save money on your monthly payments.

Do I have to pay points to achieve this rate? You might have to pay points up front in order to lower the interest rate on a loan.

Will your lender lock in the interest rates and points they’ve quoted, and will there be a fee for doing so? Your lender should be able keep your interest rate and points steady for a certain time period so that you won’t have any surprises when your loan payments begin.

What is the term of the loan? This is how long you have to repay your loan.

Will there be a lump sum (balloon) payment due at the end of the term? Find out what you will owe at the end of your loan so that you can adequately prepare your finances.

What is the minimum down payment required? For some loans -- a mortgage or a car loan, for example -- the borrower makes a down payment. In those cases, the larger the down payment you make, the lower your monthly payment will be.

What will my monthly payment be? This can help you determine your monthly budget including utilities, insurance and other expenses.

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Is there is a penalty for prepayment? In other words, if you pay off your loan early, will you be charged a fee?

What are the fees associated with the loan and what is their estimated total? You will probably be expected to pay some fees associated with processing your information and closing the loan. Ask you lender how much you will be expected to pay so you can be sure the fees are reasonable and that you have the money available.

Under what circumstances can full payment of the loan be demanded? If you are late or fail to make a payment, you may be expected to pay the entire amount before the term of the loan is over.

What documentation is needed? You will probably need to submit information about your debts, assets and employment history.

How long will the approval process take? This can impact how soon you can put the funds to use.


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