8 Golden Rules to Follow When Taking a Loan

Posted by George Jackson on February 18th, 2021

A loan is a convenient and often necessary thing. For example, not everyone can save for a new car. Therefore, a loan is a good option not to postpone the purchase. But before you take on any additional financial obligations, you must think very well and weigh everything.

Here are 8 rules to help you get a loan correctly.

Rule 1: Compare loan offers

Never choose the very first lender you come across, even if you are a regular customer. The situation in the banking market changes very often, and the bank that yesterday offered the “cheapest loans” may already be “out of the market” today. It would be optimal to contact 3 lenders and find out their loan rates and terms, the payment schedule, and requirements for borrowers. Study each of the offers carefully and make your final decision.

If you are simply lost in a variety of lenders, use loan referral services like mbvt.com. This website will help you find the right payday loans in Massachusetts on the most beneficial conditions. You only need to fill out a short application form and provide basic information like name, phone number, address, birth date, email address, SSN, employment status, income, etc. Submit your application and the service will match you with the lender that suits you most. The service is free to use and available 24/7.

Rule 2: Sober mind and cold calculation

In professional trading, there is the term "emotional purchase". Stores make every effort to make their visitors euphoric under the influence of emotions so that they make more and more purchases. You probably have ever had a situation when you made an unplanned purchase?! And then this thing was gathering dust on the shelf in your house because of its uselessness. What prompted you to buy it?! Probably an amazing promotion like "A 50% discount only today" or a story of a very courteous seller about a new product with incredible possibilities, which is sold like hot cakes...

So often people give all their money and sometimes borrowing from friends or take a loan. Remember, any serious spending should not be an instant decision. If you really want to buy something, go back home and try to postpone the purchase until the next day. Maybe tomorrow the purchase will turn out to be completely unnecessary for you.

Rule 3: Loan for urgent needs

This wording can often be found in a bank as the name of a banking product. You need to know that such a loan should be taken for something extremely urgent and necessary for you (such as medical treatment or paying utility bills), and not for a new "toy" (fancy smartphone, super tablet, miracle vacuum cleaner, etc.). After all, life is unpredictable and you can instantly lose your job and income due to various circumstances. As a result, you can stop paying the loan. Everyone has risks, even very successful people... Therefore, before taking a loan for any purpose, always think about whether it is worth it. Do you really need it now and is it worth taking on long-term financial obligations for it?

Rule 4: Loan payment must not exceed ½ of your monthly income

Some economists may disagree with this simplistic approach to assessing the credit burden. But our goal is to provide the most simplified version, understandable to everyone, especially since many retail banks use such an assessment before approving a loan.

For example, your average monthly income is 00, you are already paying 0 for one loan and 0 rubles for another. And now the tablet computer of your dreams is on sale. There is no money for it, but why not take a loan?! You go to banks and ask them to make up approximate payment schedules. Take them home and slowly choose the optimal monthly payment, which, taking into account all payments and commissions, does not exceed 0.

Rule 5: Don't look like a beggar

The desire of bank employees to give you a loan is no less than your desire to take it because their personal income depends on it. Therefore, when you visit the bank, be more confident. The following phrases work great: “I will compare your offer with others and choose the most attractive offer”, “I heard that the lender XXX offer a great promotion, I will go there and find out the details”, etc.

Ask more questions about the terms of the loan: interest rate, commissions, early repayment penalties, payment methods – this way you will look like a responsible client so that the bank employee does not have a desire to offer you an expensive loan.

Rule 6: You must know exactly the amount of the full loan overpayment

Interest, commissions, insurance are included in the total loan amount you have to pay. Overpayment on the loan is the most important indicator that you should pay close attention to. Do not complicate your life with independent calculations, multiplying the interest by the loan amount, summing up the commissions, etc., ask the bank for the estimated payment schedule, it is easy to calculate the overpayment amount (add up all the payments on the schedule and subtract the amount of the loan taken).

Another important point: lenders do not always have in-store offices in your city for accepting loan payments, so be sure to specify the payment methods: through terminals, branches of third-party banks, automatic withdrawal, etc., and the commission charged.

Keep in mind that the actual payment schedule at the time of receiving the loan may differ from the one that was given to you at the stage of preliminary consultations. Therefore, before signing the loan agreement, check the final payment schedule with the original and competitors' proposals. Do not hesitate to get up and leave if the terms of the loan and the payment schedule differ from the original one, which is acceptable to you.

Rule 7: The more documents you collect, the less you overpay

You must understand: the less the bank's requirements for the borrower, the higher the risks of loan default and, as a result, the higher the overpayment on the loan. Therefore, you’d better devote an additional couple of days to collecting documents than to overpay more on the loan in the future, and the seemingly insignificant difference in payments of -30 per month translates into 0-360 per year.

Rule 8: A guarantor is a way to lose friends and make enemies

For a bank, a loan guarantee is an additional guarantee, and often its presence allows you to reduce the interest rate, and sometimes it is a prerequisite for loan approval. You should think carefully about whether to contact a friend with a request: “I want to get a loan. Will you be a guarantor? I will make payments in time... You have known me for a long time ... " But neither you nor your friend can predict the future. And you can easily lose a friend and even make an enemy in his/her face if the loan is not paid. From the moment of the first delay, the bank is entitled to demand payment not only from you but also from the guarantor. But the guarantor can be removed only through bankruptcy.

Here are the basic rules that, in our opinion, should be followed when getting a loan. Of course, someone may disagree with them, but these rules are revealed from our own many years of lending experience, they do not call for anything, but are written only to help you.