Lending and borrowing have been around for centuries, dating back to the Roman Empire. Loans were so prevalent in the society that the Roman Law had a set of rules, called Lex mercatoria, which governed them. Today, loans remain very popular.
With all these new options available, knowing the questions to ask when taking out a loan or borrowing from someone else is quite a headache. That’s why we’ve put together this list of essential questions most people never ask before taking a loan. If you’re considering taking out a personal loan, there are some important points to consider.
Usually, people opt for loans out of need. The reasons often vary, depending on your situation. It could be that you need to finance your business, purchase a home or a car, or get a payday loan. A loan is an amount of money that you borrow from a financial institution, a company, or an individual, with an agreement to pay back over a specified period.
Key Points to Consider
Do I need money? Regardless of your need, the first thing you should do is to consider its necessity and urgency. Do you really need a loan? Or can you save up the money you need? Answering these questions can save you a lot of money and effort.
Your credit score: It’s important to consider your credit score as it will decide your payback period, interest rate, and others.
Alternatives to personal loan: Instead of borrowing money from a bank or a financial institution, you could ask a friend or family member for help.
Interest rates and fees: You’ll have to pay back the money along with interest rate and fees. So it’s helpful to consider multiple loan options and choose one with the lowest charges.
FAQs You Should Ask
After thorough research and evaluation of options, it’s time for your lender some relevant questions. Following are some FAQs you should ask:
How much can I borrow?
Although there’s no limit on how much you can borrow, you have to share all necessary information with the lenders. This will help them decide the amount that’s right for you. That way, they get the chance to demonstrate their credibility and honesty.
How long will I have to pay the loan back?
The repayment period depends on the lender. It typically ranges from six months to 10 years, depending on the loan amount. The length of your repayment period will also affect the interest rate.
What will be the interest rate?
It’s important to ask the lender this question and understand everything about interest rates before borrowing. The interest rate relies on several factors like credit score, repayment period, and amount of loan. If you have a good credit score, there are chances you might get the lowest interest rates.
How long will it take to receive the amount?
It depends on many factors like waiting period or prior applications or type of loan product. But you should ask about it and consider these factors while applying for a loan.
What will be the repayment method?
It is decided mutually, but the common practice is monthly repayments. The repayment amount depends on loan amount, payback period and interest rate.
What are the fees?
Many lenders include a processing/organization/closing fee, that is a percentage of the loan amount.
Do I need a guarantor?
This is an important question you must ask because some lenders require a cosigner/guarantor to approve the application.
These are some FAQs you should ask before applying for a loan and consider them in your next application as it will save you time and money.