Having credit is crucial to getting pretty much anything of substance in the world. Even rich people don’t always like spending their own money for things outright, so the ability to get a loan to take care of things or to have things is a nice benefit.

Day 6/365 : When I was happy to hold all this money
Giovanni Orlando via Compfight

Having said that, most people go into the loan process with one overriding fear, that being the ability to pay it back. It’s a valid fear and a major consideration but it’s not the only thing to consider when it comes to getting a loan. There are many factors both before and after that people who are looking to get a loan, and I mean any kind of loan, should consider before pushing forward. There are 5 of them:

1. What does your credit history look like? It seems to be a given that no one tries to get a loan if they don’t need the money, but that’s not good enough for many financial institutions. This isn’t really about credit scores as much as how your history profile looks when it comes to your finances and even if you have one. Banks don’t expect students to have much of a credit profile when they’re trying to get a loan but they will take a good look at their parents to see how what their spending profile looks like. Sometimes not having a credit profile is as bad as having a bad one. You won’t necessarily be turned down, but your interest rate might not be as good as you hoped it might be.

2. Know something about how interest rates work. Over the past 4 years the housing industry has been horrible. That’s because most people in certain states took out loans with floating interest rates that had no ceiling on them. When things were going well they might have had interest rates around 4 or 5% that worked like a charm. But when the economy got rough some people suddenly had interest rates as high as 25%. There aren’t many people who could afford an increase of 600% or more for a monthly mortgage.

Before you sign anything, you need to know if your interest rate is fixed, what the rate is, if there are penalties for paying off your loan early and how you can find out what your payment amount would be if you wanted to pay it off sooner.

3. You need to have some kind of idea of what your credit score might be. Although I hate credit scores with a passion, truth be told most lenders aren’t giving you a dime without seeing what your credit score is. Unfortunately, you can’t just look at one company and think you’re doing well; it’s something the federal government will soon be looking at stabilizing, but you’re still going to want to be cautious in checking the major 3 credit bureaus to see where you stand.

4. There’s going to be a lot of paperwork. If you think buying a car or going to the hospital involves a lot of paperwork, you’d better get your mind prepared for all the paper you’re going to see and sign when trying to get a loan of any kind. There are regulations and protections and information you need to know and information you need to be ready to give up and fees and disclosures… on and on. For some loans you’re going to need the services of a lawyer because even if you’re one of the smartest people in the world, you don’t know everything, and if you’re looking at buying a house, you’d better have someone with that knowledge watching your back. By the way, some of this paperwork protects you as well because if you negotiate terms and it’s on paper with signatures, it has to be honored by both parties.

5. Be smart and safe with all information you have, no matter where it is. To say there’s no privacy anymore seems to be a wasted effort, but if you want a loan and it’s substantial you need to know that while you’re being reviewed it could go beyond your credit history and credit score. If you have a Facebook page and you’re bragging about the new Maserati you just bought and you’re trying to get a college loan, that could be held against you. If you brag too much on social media about anything that either makes you look like someone who may not be able to pay your bills or is reckless with money, or even if they view you as potentially irresponsible because you or someone else has put up pictures of you carrying on a nefarious nightlife, you can be turned down, and they don’t have to say anything more than they see you as a credit risk. Character can be a major reason for being turned down for a loan.

None of the five considerations is meant to scare anyone off from applying for a loan. But getting a loan is a big responsibility, no matter how much it is, and as the economy starts getting better, banks have learned some lessons on how to better determine someone’s credit worthiness. Make sure you know how to protect yourself across the board.

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