Loan is a way in which money can be raised to finance the
personal needs of an individual. When you take a loan you are
typically required to sign a loan agreement. The loan agreement
covers the points that are mentioned in the promissory note.
But the loan agreement is lengthier as compared to the promissory
note and contains more details about the transaction.
You might get your loan from any bank, financial organization or any private lender but there are a number of factors that should be looked into before signing on the loan. You should read the loan agreement carefully. The loan agreement contains the following points
The due date: the loan agreement would contain
the due date when the principal on the loan is supposed to be
paid back. This date is usually the end period of the term of
loan. When reading the loan agreement you should make sure that
the time is enough so that you can meet the payments on time.
Make sure the repayment period is enough for you to make the
The interest rates: the lender decides on
an interest rate that is required to be paid on the loan. Usually
loans that are for a smaller time have a lower interest rate
when the loan is for a longer term means that you would have
to pay a higher interest over the life period of the loan. These
factors would include your credit score, the amount of loan
that the borrower has applied for, the down payment made by
the borrower and the policy of the loan company. Loan lenders
usually offer low interest rates to borrowers who have a good
credit score because they are considered as prime borrowers.
There are times that the borrower who has a good credit score
would even qualify for a zero down payment loan or a stated
income loan or a no documentation loan. Having a good credit
history can make the loan process easier and the borrower can
get the loan on time.
The fees on the loan: the lenders usually
charge fees like processing fees, application fees, mortgage
insurance fees, legal fees etc. when going through the loan
agreement you should make sure that you check out the additional
fees charged by the lender. At times the lenders would not reveal
but there are a number of hidden costs.
The prepayment: when taking the loan check
the loan agreement for any mention of the prepayment penalties.
This is charged in case you pay off the loan earlier than the
due date of the loan.
Terms of Default: the lender usually mentions
the terms of default in the loan agreement. These terms refer
to the condition in case you fail to make the payments on time.
It is important to go through this especially in case you have
taken the loan against any collateral.
Grace Period: if you dont see any mention
of the grace period on the loan agreement
then you should negotiate with the lender to add some grace
period for every payment. In case the loan mentions any late
payment fees then you should make sure that the fees is affordable.
Collateral: there are times when the loan
is given out only after pledging a collateral for the loan.
According to the security agreement in case
you default on the loan the lender has the right to foreclose
the property and recover his amount. When you take a secured
loan then you should make sure that payment options are flexible
and that the amount you are taken you would be able to easily
pay it off.
Co-signers: there are times that the lender
may ask for a co-signer or a guarantor. This is a way in which
the lender assures that the loan will be paid back. The co-signer
however takes the risk that his assets would be liable for the
repayment of the loan.
Before you sign any loan agreement you should
compare the offers from various lenders. When you take the effort
of comparing the loans you would be taking charge of securing
you loan. Usually when lenders offer loans they would offer
a higher interest rate so that you would be unable to pay back
the loan but by comparing and negotiating for the loan you can
get a good and affordable deal. When you take a loan against
a collateral and if you fail to make payments towards the loan
then keep in mind that the lender has the full right to take
possession of your property. Besides with unsecured loans you
would have to pay a higher interest rate. You should rule out
your options and then go in for the loan that would give you
the best deal.
While taking a loan you should borrow only that amount which you can afford to pay back. It is important to realize your financial condition and then apply for the loan. Also make sure that the loan you pay has a fixed interest rate so that you know how much you have to pay every month. It is important to analyze these conditions so that you know how much you have to pay every month towards the loans so that you dont fall into any adverse situation.
In this huge loan market there are many types of lenders that offer some of
the great deals to borrowers and would provide them with the
much-needed finance. But before you sign up for any loan option
you should make sure that you have verified the reputation of
the company and have understood all the terms and conditions
of the loan.
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